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Why high cash flow can be a false idol

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Your Investment Property | 26 Apr 2012, 12:00 AM Agree 0
With the staggering number of investors in pursuit of properties with great cashflow it seems almost unthinkable – high cashflow can sometimes hurt you. Here’s four issues many investors never even consider
  • Bill Haltis | 26 Apr 2012, 01:01 PM Agree 0
    I wonder how long you can hold a negatively geared investment especially in the current economic cycle? With the right structure in place you can deal with tax issues and the good news is that you do not have to buy in regional areas to achieve positive cash flow.
  • Kathryn Lambkin | 26 Apr 2012, 03:39 PM Agree 0
    You do not have to buy in regional area to achieve positive cash flow.
    I've bought a house opposite the train station. It's about $150K cheaper than those 500m down the road, but it still rents for the same amount!
    Converting your houses to two half-houses or adding a granny flat are great strategies.
    I'm finding there is a big demand for 6-month, fully furnished accommodation including utilities is very popular. Sometimes people just need to move to an area to work for a short period, and are happy to pay a high weekly amount to avoid the high cost of furniture removals, furnishing an entire house themselves and paying connection costs for electricity and internet. Obviously managing this type of property myself helps, so I'm not paying a week's rent in agency fees each time I change tenants. I haven't had a single day's vacancy between tenancies.
  • Pascoe | 26 Apr 2012, 06:29 PM Agree 0
    Yes and it will always be 150k cheaper (and more) than those 500m down the road.
  • Elizabeth Feld | 26 Apr 2012, 10:05 PM Agree 0
    To get positive cashlflow IM also renting property fully furnished for short Term 6 months OTherwise they would be negative , summer I get a lot of esquires but winter it gets tougher as the means of internet advertising is very limited for a private person I use GUMtree Im wondering what other sites there are for private advertising on the internet that works . so furnishing only helps the positive cashflow for part of the time
  • Michelle | 16 Aug 2012, 01:06 PM Agree 0
    There will always be a demmand for rentals near a train station for people that need the transport...and well done for buying under value in an area where prices can be higher. Not everyone can afford to live close but not right next to the train station!

    I agree with your strategy of dividing the house and granny flat perfect...I can only see the $150k cheaper as a positive and if cash flow positive even better........sounds like you have some value add strategies that mean that you can increase its value and it may not always be $150k cheaper as suggested above. Thinking cleverly and outside the square can add value in nunerous could rent out the driveway as permanent parking for a commuter for example.
  • Ben | 16 Aug 2012, 01:19 PM Agree 0
    I don't necessarily agree with point 1. I would much rather have to give "the man" a bit of some money I earn rather than not earn it at all!
  • Jim | 16 Aug 2012, 01:36 PM Agree 0
    Pascoe, it's not about the value, it's about the percentage change in value with time. I would expect that property to track the trend in its immediate suburb. If everything doubles in time, then your property will be $300 cheaper, but so what, it's still the same percentage increase.
  • Pascoe | 20 Aug 2012, 12:48 AM Agree 0
    Jim, you said, "I would expect that property to track the trend in its immediate suburb." I doubt that. I think you will find the percentage increase would be less. If it was the case, than I would go to a suburb and buy the absolute cheapest property I could find, such as on the main road, backing onto a train line, and in between a shopping centre car park and a needle exchange centre.
  • Eos Property | 11 Dec 2012, 01:27 PM Agree 0
    In response to
    1. Paying tax means you have made a profit - much better than losing money and paying no tax. Careful structuring can minimise tax effect too.
    2. Can use surplus cashflow to help meet outgoings on negatively geared property. Using a balanced approach it is possible to get growth and cashflow. Some creative investing in capital cities can realise rent returns near 9% with growth prospects added in sounds like a good mix to me.
    3. Very broad sweeping statement. There are times when these factors exist and there are times it doesn't. Have seen tenant problems in better areas. Tenant issues relate directly to the tenant and not the area.
    4. Fair call. Good broker may be able to help investors steer around this issue.
  • David Radcliffe | 26 Jan 2013, 03:34 PM Agree 0
    I have to agree with Ben & Eos property. It is FAR better to be making a profit and having to pay tax than making a loss and having to pay expenses out of my wallet. So many people say they hate paying tax. I am the opposite, I love to pay more tax each year (but as little as is legally possible), as this means I am making more, which allows me to spend more. It is true that some of these cash-flow positive properties are found in "single industry" (mining) towns and many lenders are starting to tighten up on their lending criteria in the towns, ie: the lenders will make down the rent you receive and may not let you borrow above 70% of the value of the property. Be VERY careful buying in such towns.
  • Frank | 26 Jan 2013, 07:35 PM Agree 0
    re. furnished rentals - I recently asked an inner city agent - he said they had very few furnished rentals as the type of tenant tends to be less committed, fly-by-night, more likely to shoot through without paying the rent, as they can move out just as easily as they moved in - without a lot of stuff.

    And the agent said - the owner still has the same tenancy regulations - in NSW furnished used to allow 6 weeks bond, now it is max 4 weeks the same as unfurnished, so why risk damage to your valuable fridge/washing machine/TV, etc. if you can't recover from the bond - and after the end of a fixed term tenancy (which automatically becomes continuing/periodic tenancy) you still have to give them 60 days notice to quit so why ask for extra headaches with short term tenancies - agents still charge 1 weeks rent for each turnover of tenancy.
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