property investment
The Significance of Cash Flow Positive Properties in a Changing Real Estate Market
Posted on May 26, 2020 by Mirren Property InvestmentBuying investments during a global crisis can be stressful. Big changes are happening in all industries and it’s normal for investors to experience fear. However, there may be real advantages to them, especially now when prices are falling.
How would you like to own a property that generates income every week and finances you with the money to purchase it?
That is the charm of cash flow positive investment properties. Cash flow positive investment properties are types of investments that produce monthly income that exceeds its holding costs. The word ‘cash flow’ is the term for the income generated by your rental property after tax deductions and depreciation. Most cash flow positive properties earn enough to cover the costs of the property expenses, including maintenance, management fees, and mortgage.
Whereas, a cash flow negative property is one where the income does not cover the expenses and you need to add funds from your pocket. This is different than Negative gearing. Read more about Negative Gearing here.
Learn more about cash flow investments and arm yourself with savvy real estate knowledge to keep your wealth in check during these struggling times.
A Deeper Look at Cash Flow Positive Investment Properties
First-time investors are often scared to jump on big investments because of uncertainty and lack of experience in investing. With cash flow positive investments, they will have the confidence to purchase their first investment property. This is because of how easy cashflow positive investments earn you money. Unlike long-term price appreciation which isn’t set-in-stone often unpredictable, cash flow properties are consistent and will generate your income right from the start.
Nervous and first-time investors will find this strategy less risky and more appealing. Over the years, they’ll learn how to handle multiple investments, improve their portfolio, and ultimately increase their wealth.
Pros and Cons
Before jumping right into any investment strategy, it’s crucial to know what you’re going to experience. So here are some pros and cons of cash flow positive investments you need to know.
Make Money Right from the Start
Cashflow positive investments allow you to earn money early on through rent. Unlike other investments where you have to wait for months or even years to start earning, cashflow positive properties generate income right from the start.
Earn Enough To Pay The Property
If you use the money to pay off the mortgage, you can eventually pay off the property in just a few years. So yes, it does seem like the property will be paying for itself and you’ll not lose a single dollar.
Grow Your Investment Property Portfolio
Cash flow positive investment properties can improve your real estate investment portfolio. Through earning extra money, you can not only pay off the property but also save enough to buy another one. The more properties you own, the faster you can reach all your investing goals.
Increase Your Borrowing Power
Getting your loan approved is harder during struggling financial times. However, with income-generating investments, you’ll be in a much better place than other investors. You’ll have better luck with lenders as they will approve your loan more easily. Here’s more on diversifying your investment property portfolio. The more investment properties you have, the more lenders will view you as a trusted and reputable investor.
Help You Fund Other Investments
The income you generate from your cash flow can help you earn enough to buy new investments or fund your retirement plan.
Of course, there are some limitations to this investment. Although the pros outweigh them, it’s essential to know what you’re going to have to deal with. Here are some things to consider when purchasing cash flow positive properties.
It’s Taxable
Income generated from cashflow is taxable. So although it’s a great income-generating extra fund, it is taxable and hence you need to do the math right to make profits.
Like most investments, it is not without any risk
Most of these properties can be in regional areas which means there’s a bit of risk involved in its long-term growth potential.
How To Find A Cash Flow Positive Property?
Finding cash flow positive properties to invest in is easier said than done. Here are some guidelines to help you purchase the best income-generating property for you today:
- Check the vacancy rate in the area. The lower the rent in the area, the higher the vacancy rate.
- Research about industrial developments in the area. Area demographics are often determined by this factor, so the more progressive the location, the higher potential of properties to perform well.
- Know the population growth. Don’t invest in locations where people don’t see themselves living for years to come. The higher the population growth, the greater the demand for rental properties.
- Simply put, you need the right investment strategy and look for an investment property which will fulfil your investment goals. At Mirren, we will help you through the whole process seamlessly? Curious how it all works? Contact us or call on (02) 8814 5275.
Final Thoughts
Investing in cash flow positive properties is a great way to build wealth and make money in real estate. However, just like all other kinds of investments, you need to have the right investment strategy and need to be smart in finding properties to invest in. When choosing your first investment, try to focus on cash flow positive properties that have a high potential for years to come. It will not only give you an extra source of income but also help you pay off your property in the near future.’
Need the right investment strategy? We can help. Contact us here.
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