Download your FREE copy of Helen Collier-Kogtev's latest report - 7 Steps to Successful Investing in an Economic Downturn. www.realwealthaustralia.com.au/report
If I had a dollar for every time someone asked me how to find positive cash flow properties, I could lift a starving nation out of poverty.
It makes me laugh when people say they don't exist, as it only proves their ignorance. To buy a positive cash flow property requires a little creative thinking - it's not going to drop out of the sky and fall into your lap. But I feel that cash flow is what makes the difference between any investor and one who know what they are doing.
At some point in time, should you chose to build a portfolio, you will fit the financial brick wall - meaning, you will be heavily negatively geared and the banks will refuse to lend you more money. In an economic downturn, borrowing more money for negative gearing can be suicidal, as the banks are nervous enough. There is a tightening of the money supply which means that banks are lending to people who they feel can comfortably afford to repay the loan. A few years ago, the banks were more relaxed about their rules but now as they don't want to have bad loans on their books, they are more selective in who they lend money to.
To build a portfolio you need to play the game following the new rules of finance. While the banks are afraid of lending or losing money, it is even more imperative that you are smart with your property purchases.
There are several ways to find/create cash flow deals:
• Buy a straight cash flow property that has a high yield. For example, buy a property valued at $400,000 with a rent of $800 per week, which is considered a 10% yield. There are many of these deals available around Australia. You will need to look further afield as you will not find them in your back yard. Capital cities traditionally do not offer opportunities like this, therefore you need to broaden your search to include regional areas around Australia.
• Buy a block of units that can be strata titled. The idea here is to invest the time and money into obtaining approvals from council to strata title the units and sell some to pay down the mortgage on the others. If you buy a block of four units, you strata titled them, sell of two or three, and pay down the mortgage on the units you keep. Having a smaller mortgage will increase your cash flow.
• Rent rooms to students by purchasing a normal family home close to a university or TAFE college. Contact the college directly to find out if there is a shortage of housing for students. If so, see if they can assist you with letting out your rooms to them. Put a lock on each bedroom door so that each student has their privacy. Add internet and maybe some old furniture in the common areas. You may even want to rent the rooms out semi furnished for some international students in need of a bed and desk. Consider even adding in a vending machine as the very thing students have no time for is cooking.
• Add value through sub-division, by purchasing a house on a large block of land. Go through the process of obtaining the relevant council approvals and then sell off the back block, and put the funds towards paying down your mortgage. This will help to increase the rental yield due to the mortgage being lower.
• Add value through rejuvenation by purchasing a property in need of a cosmetic renovation only. Improve the property by painting, changing carpets and door knobs, and sprucing up the gardens to give it more street appeal. Set a budget and stick to it, by doing simple things that do not cost the earth to complete. A light renovation can increase your rental return giving you more cash flow.
For some of these points, you'll need to make sure you speak to the council in the relevant area to make sure they will allow the changes: no point going through all of that hard work to discover that the council will not allow it.
When is comes to cash flow properties, try and think outside the square, and don't listen to those negative comments from people who have no idea about cash flow. Beware of someone who is an investor, but may use the cash flow from their business to sustain their negatively geared properties. Most investors do not have this luxury; therefore need to rely on their incomes to sustain the mortgage. The alternative is to use cash flow strategies to sustain the mortgages while you build your wealth.
Until next time...happy investing!
Don't forget to download your free copy of my latest report - 7 Steps to Successful Investing in an Economic Downturn.
The above information is supplied by Real Wealth Australia.
Dislcaimer: while due care is taken, the viewpoints expressed by sponsors do not necessarily reflect the opinions of Your Investment Property.
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