Positive Cashflow Strategy

Hi,

Is it possible to use positive cashflow strategy to give you passive income? e.g buy in regional will mostly give you cashflow positive (e.g wagga) and by doing this, it allow you to keep buying considering it doesn't affect your cashflow?well this is assuming that you have enough money to pay 5% everytime considering there will be minimal CG/equity by buying the regional property?

Wow thats remarkable. Are you saying that if something is cashflow positive that it might give you income as well?

Well i guess just buying 1 cashflow property will not be enough to give you reasonable income. Buying a handful of it and keep leveraging it.

But anyway, this is a dummy question to help me better understanding about the property strategy

D.T. said:

Wow thats remarkable. Are you saying that if something is cashflow positive that it might give you income as well?

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My friend, you need to create equity. Forget 10 dollars here and 20 dollars there.

The best thing you could do right now is to stop. read some books. ask more questions on here. Learn more. Then determine your goals. Choose a strategy and start from there.

I keep saying the same stuff to ppl like you, but IMHO theres no way around it. Its like, you want to sit an advanced algebra test with only kindergarten level maths.

What do you think your chances of getting an "A" in the test will be?

I am not a fan of this approach.

I think there is little point in investing in property unless there is capital gain prospects. Positive quickly becomes negative as rates rise and/or repairs are needed.

Terry_w said:

I am not a fan of this approach.

I think there is little point in investing in property unless there is capital gain prospects. Positive quickly becomes negative as rates rise and/or repairs are needed.

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thumbs up times 1 trillion!!!

blessme said:

Hi,

Is it possible to use positive cashflow strategy to give you passive income? e.g buy in regional will mostly give you cashflow positive (e.g wagga) and by doing this, it allow you to keep buying considering it doesn't affect your cashflow?well this is assuming that you have enough money to pay 5% everytime considering there will be minimal CG/equity by buying the regional property?

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Property investment is long run, I remember my first property is negative for 3 years. Capital growth is 30%, which enable me to purchase 2nd IP.

People tend to forget correlation between capital and cashflow. If you take a look at price movement, why the yield is low because capital price growth faster than rent raise or vice versa.

So the longer you hold the property, rent will increase.. But capital growth is 1st priority. So how you hold it long enough? Depends..

Some people have higher salary and afford for negative gearing.
Balance portfolio between positive cashflow and CG is another option
This is the art..

Terry_w said:

I am not a fan of this approach.

I think there is little point in investing in property unless there is capital gain prospects. Positive quickly becomes negative as rates rise and/or repairs are needed.

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Totally agree.

A strong yield is only going to take you so far - without decent CG you won't get ahead.

Cheers

Jamie

nothing wrong with cash +ve. Nothing wrong with investing for a tax benefit either.

But not either in isolation.

Once you have worked out you need say 75 k a year in todays dollars to make for recurring income so you can do "real life" whatever that is for you, and you make 80 a week + ve cash flow from a place, how many Ips wll you need ?

Approx 18.

Thats a bus load of equity and management


I have lots of clients that have +ve cashflow stuff, but few that this is where they focus on. Many do the Brad Sugars wheel thing, and balance the income producers with the growers.


Finally, can you get both income and growth? sure............... but thats a separate game all in and of itself from what I have seen.

ta
rolf

my advice

many of the spruikers make it sound so easy,

buy 10 x $100 per week cashflow positive properties and you are almost retired

the reality is, most properties that are $100 cashflow positive are after depreciation, and new Home and land packages

also, one unlucky maintenance and your entire years cashflow are wiped out,
eg hot water system, burst pipe,

also I meet heaps of people who say, oh, I didnt buy that property because it was $10 cashflow negative, im only looking at neutral or above!!!

on top of that, cashflow has been calculated on rent x 52 - PM fees, minus rates

they fail to include, insurance, vacancy, leasing fees, maintenance

once you include every single realistic expense, reality is, very few properties are cashflow positive

I'd assume most of those cashflow regional properties are the older type and will more likely require higher maintenance and repair costs, often at higher rates due to location, and when you least expect it.
All your cashflow can be wiped out real quick with these.
And you have sacrificed capital growth which you would have got with properties located in better areas of high demand.

Ace in the Hole said:

I'd assume most of those cashflow regional properties are the older type and will more likely require higher maintenance and repair costs, often at higher rates due to location, and when you least expect it.
All your cashflow can be wiped out real quick with these.
And you have sacrificed capital growth which you would have got with properties located in better areas of high demand.

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Right on Ace.

I call them cash flow abusive, capital growth elusive.

Hmm i'll present an alternative view just to throw different strategies into the mix.

I look at investing in property as one part of a total investment portfolio. So far i have invested solely in cash flow properties (NRAS). The main reasons why i did this were:

1) Manufacturing/Creating equity in markets that dont move generally require effort. Not my thing - although i definitely agree that this works a charm.

2) Cash is more certain - although this is v.debateable as others have mentioned.

3) Generally, i think markets move together. E.g. i couldnt care less where i bought in Sydney or Brisbane - i was basing any growth on the average Sydney growth rate. You need a certain flexibility with an NRAS strategy and this is where i was most flexible.

So far, its worked out quite well for me. Im <25 and will soon be earning more in after tax passive income than most people earn via salary at my age. I can buy a new property every year for the next decade without really doing anything.

These will likely be more wealth building pursuits as others have posted above.

If **it hits the fan, a recession hits, property will still be earning me cash $$$ (even if wealth falls).

Note that this is generally the reverse of textbooks - they'll broadly say build an asset base that grows in wealth over time. Then transition this into income. This model fits the income life cycle pretty well.

It doesnt mean its the only way.

Cash flow first suited me perfectly. It allowed me to take on risks elsewhere. Income/Cash flow is my best insurance policy.

I should admit, that I got in at the right time and had significant equity gains - but it wasn't because i was trying to buy 'capital gain' properties. It was a positive cash flow strategy and me benefiting from point 3 above. These gains have largely funded most of my portfolio.

Therefore my summary of this debate is: Capital is indeed awesome and where you'll make real wealth (my small portfolio will be halved without it).

But a balanced cash flow positive strategy can get you there.

Hi All, thanks for the reply. I really appreciate the answers from everyone

I'm asking the question just to get different perspective from anyone else that has more experience than me

LeoT said:

My friend, you need to create equity.

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Yep.
It's much easier to get some substantial equity first then convert to passive cash flow, rather than try to get insignificant passive cash flow too soon before building enough equity to work with.

I'd rather jump on the exponential curve 1/2 way up than start at the bottom.

blessme said:

Hi All, thanks for the reply. I really appreciate the answers from everyone

I'm asking the question just to get different perspective from anyone else that has more experience than me

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Get a good broker to assess your servicability and borrowing capacity, ask them what will hold you back from getting more finance - it will hopefully only be either lack of equity or lack of income/serviceability (if it's credit rating, you have other problems to deal with first).

Serviceability you can help some by moving to a cheaper place (reduced rent if you're renting), closing credit cards, and paying off any non-deductible debt.

Equity is harder to improve.

Or - you can choose your property based on what you need to keep financing. If it's equity, buy Capital Gain property. If it's servicability, buy income/cashflow property. Just be careful as some "capital gain property" is overpriced, mainly because of it's status as capital gain property and it's location, the yield is so low it can be crippling to hold onto some of these.

If you're into researching, you can find cashflow property in capital cities as well and avoid those regional "cash flow" properties. Capital city suburbs have cashflow too, then you get cashflow and a possible moderate capital gain as well.

danwatto said:

Get a good broker to assess your servicability and borrowing capacity, ask them what will hold you back from getting more finance - it will hopefully only be either lack of equity or lack of income/serviceability (if it's credit rating, you have other problems to deal with first).

Serviceability you can help some by moving to a cheaper place (reduced rent if you're renting), closing credit cards, and paying off any non-deductible debt.

Equity is harder to improve.

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Great advice. I wish i'd done this to start. Started investing before becoming a broker - good advice/knowing what i know now, before i started, would've led me to making different decisions.

danwatto said:

Serviceability you can help some by moving to a cheaper place (reduced rent if you're renting), closing credit cards, and paying off any non-deductible debt.

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I'm not so sure i agree with this part though danwatto. Once you've done some of the things you've said above (and gone to different lenders) it can be very difficult to move the 'serviceability wall'.

Deposits can be created via equity creation - you need the serviceability part to access this though.

Redom said:

I'm not so sure i agree with this part though danwatto. Once you've done some of the things you've said above (and gone to different lenders) it can be very difficult to move the 'serviceability wall'.

Deposits can be created via equity creation - you need the serviceability part to access this though.

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Thanks, brokers will know. Not sure which is easier and depends on the person, but yeah in the long term servicing could be a wall. For me I haven't hit the wall yet and was able to make some small improvements to my servicing.

But to prevent hitting the wall in future I've been buying the non-regional cashflow properties. There seems a huge variance in opinions though as to what's more important, with many above thinking CG is more important than cashflow. I think they are correct for those who are starting out, as equity is what held me back the first 10 years, and I think in future it will be cashflow.