The best thing about positive cashflow properties is they pay themselves off and pay you a return on top of that.
Long term, the property accumulates equity over time and creates wealth.
And in the short term, you are better off financially week in, week out, than if you didn’t buy a property at all.
This concept is foreign to the vast majority of Australian home owners, who see buying property as something that will mortgage them up to their eyeballs in debt that will be stressful to service and take many years to square off.
Bank on it
People often think property investing is the domain of high net worth individuals who negative gear in order to offset their massive corporate incomes come tax time.
But the vast majority of investors in Australia have average incomes and only one or two properties. They are better off trying to achieve positive cashflow so they don’t have to find extra money every month to sink into their investment.
And if you want to build a multi-property portfolio over time, you want banks to keep lending to you. If you are negative gearing property, you will soon hit a serviceability wall where you won’t be able to satisfy a bank that you can pay off the next loan they grant you.
The flipside is that positively geared properties can actually improve your serviceability and enable you to keep borrowing to buy more.
B Invested founder Nathan Birch used positive gearing as one of the key pillars of his strategy and was able to amass a portfolio of more than 220 properties. If he was having to rely on work income to put his own weekly money into each of his investments, he probably wouldn’t have made it past two or three investment properties.
Have I missed the boat?
All we hear about in the media these days is how properties are unaffordable and prices keep getting further out of reach. So a lot of people think positive cashflow properties no longer exist.
However, the other thing we hear a lot about is the rental crisis, where rents are soaring through the roof and there is not enough supply to meet tenant demand.
Rising rents and tight vacancy rates are tough for tenants, but they are good conditions for positive cashflow investing. And a year of rate rises and price falls in various markets has made now a great time to find positively geared properties.
So how do I find them?
Nathan Birch’s three core strategies for property investing stand up in any market.
Purchase the property for below market value; with upside for capital growth; and a strong rental return.
Purchasing below market value means you can create instant equity on the way in and minimise risk if there is a market fall for some reason. And the cheaper you buy the property for, the smaller the loan repayments and the greater the opportunity for positive cashflow.
Purchasing below market value can be hard without experience. The obvious way to get around this is to outsource that experience to a buyer’s agent.
B Invested buyer’s agents have relationships with real estate agents built on decades of research and work. They get access to deals that a first time investor would never know existed.
Nathan has also always targeted the entry level end of the market, often on city fringes.
There are often more renters than buyers at the bottom end of the market, which means rental returns are pushed higher than loan repayments.
A $200,000 property may attract more than $350 a week in rent, which is a 9% yield (a yield higher than 7% is enough to be positively geared).
If you purchased a $1 million investment property, you’d need to rent it out for $1800 a week to get a 9% investment yield. And there is not enough demand from renters in that part of the market to do so. Most $1 million properties will rent for around half that much.
In recent months, B.Invested buyer’s agents have sourced below value properties in WA and Qld for clients who are now enjoying 10% plus yields. So if you want to find out more, or simply discuss your investment options, click the below ‘Make your Move’ button and book in a time with our Investor Relations Team.