While Reserve Bank interest rates remain at historically low levels, and all sectors of the housing industry experience the sort of boom that hasn’t been seen in a generation, clever investors are exploring all available markets.
However, not all markets are suitable for all investors, and if you are seeking positive cash flow and growing your monthly income, you need to look carefully at which sectors are likely to deliver in line with your property investment goals.
What are the benefits of investing in positive cash flow property?
Everyone has different investment goals, and so the strategy you opt for will depend on what you want to achieve in both the short and long term. If your intention is to generate income each month, then buying positive cash flow investment property will be the best approach.
This is because with a positive cash flow property (also referred to as positively geared property), the rental income is greater than the holding costs (e.g., mortgage, strata fees, council rates, etc.), and therefore you are making a profit each month. It may potentially only be a small profit, but it nevertheless means that your investment property is more than paying its own way and is essentially costing you nothing.
Therefore, the key benefit to investing in cash flow properties is that it increases your monthly income, which in turn can mean that you are in a better position to get additional financing that you can potentially use to grow your property portfolio.
A negatively geared approach to investment, i.e., one where the expenses associated with owning the property outweigh the rental income you derive from it, will not provide the same opportunities for positive cash flow.
Instead, this is a strategy that is better suited to investors who are looking for a means of reducing their tax liabilities in the short term, and/or growing capital over a significantly extended period of time.
Should I consider buying an apartment as an investment?
Although there are some attractive reasons for investing in apartments, anyone who is looking for positive cashflow properties should probably proceed with caution.
Many first time investors (or even those with more experience) are tempted to look at buying units or investing in apartments because they can be significantly cheaper than other, larger types of property. Likewise, they can produce relatively high rental yields (essentially the amount of rent received annually as a percentage of the property’s market value).
However, there are other factors that need to be taken into consideration, and which can mean that buying an apartment as an investment will not necessarily produce positive cash flow.
For instance, there will be associated strata costs (which cover the upkeep and maintenance of the building) throughout the period of your ownership of the property, and these regular strata fees can therefore significantly reduce the amount of income your property produces each month.
In addition, in the light of Covid-19, demand in regional areas has increased at the expense of CBD apartments, and this has led to oversupply in many capital cities and the potential of rents to be squeezed.
What alternatives are there to apartment investment property?
There are a number of alternatives available to buying an investment apartment in order to produce positive cash flow.
For instance, if you opt for a dual income property, you can potentially receive rent for two dwellings as opposed to just one. This means you are able to benefit from immediate returns, as the combined rental income is likely to be greater than that derived from a single property (once holding costs have been accounted for).
Alternatively, buying an investment duplex property (residential property where there are two completely separate residences under the one roof) as an investment can potentially enable you to live in one of the two properties while letting the other out to tenants. Ideally, the rental income derived will cover a substantial proportion of mortgage on both properties, enabling you to pay off your home loan at a faster rate.
A third option for producing positive cashflow property is to use a Self-Managed Super Fund (SMSF), which also gives you significant opportunities for capital growth over time.
The benefits of working with property investment consultants
Getting the most out of a property investment, regardless of the sort of strategy you want to pursue, needs experience, knowledge and expertise. This is because a number of factors come into play when determining the potential value, benefits and risks of property investment.
At High Income Property, we are specialist property investment consultants with the know-how and skills to help you make the right choices when it comes to investing in property.
We have access to a wide range of markets, including positive cashflow properties in a variety of locations. Our specialist team is here to guide you through every stage of the process, and is always happy to answer any questions about the investment opportunities open to you.