{"id":10103,"date":"2016-12-08T10:00:46","date_gmt":"2016-12-07T23:00:46","guid":{"rendered":"http:\/\/realestatetalk.com.au\/?p=10103"},"modified":"2016-12-08T10:00:46","modified_gmt":"2016-12-07T23:00:46","slug":"why-positive-cash-flow-property-is-not-a-strategy-what-adds-value-and-what-doesnt-where-are-you-on-the-5-wealth-levels","status":"publish","type":"post","link":"https:\/\/channels.realty.com.au\/realtytalk\/why-positive-cash-flow-property-is-not-a-strategy-what-adds-value-and-what-doesnt-where-are-you-on-the-5-wealth-levels\/","title":{"rendered":"Why positive cash flow property is not a strategy + What adds value and what doesn\u2019t + Where are you on the 5 wealth levels?"},"content":{"rendered":"

Finance broker Andrew Mirams<\/strong> tells us what valuers look for in a property and his thoughts may just help you get your next investment property over the line with the lender.
\nProperty valuer Gavin Hulcombe<\/strong> tells us what he thinks adds value to a property and what doesn\u2019t. Great advice if you are looking to renovate with a view to adding value ready for re-sale.
\nMargaret Lomas<\/strong> explains why positive cash flow property investment is not a strategy and how the same property, if owned by two different investors, could deliver a totally different outcome.
\nMany Australians have chosen to invest in property to develop financial freedom and get themselves out of the rat race. Michael Yardney<\/strong><\/a> believes that as they take their investment journey, they fit into one of five levels of wealth. Find out where you fit.
\nEd Chan<\/strong> joins us to answer a question from Robyn. She is confused about some conflicting advice on the available tax benefits on replaced items in an investment property.
\nYou will find us at iTunes under podcasts as Real Estate Talk. Listen there for free, leave a review which helps us grow and tells us what you like and how we can improve the show. Don\u2019t forget to subscribe at the site as well \u2013even if you do get the show through iTunes – so that we can tell you about the bonus offers we make to subscribers. Your questions are welcome through the site as well.
\n <\/p>\n

Transcripts:<\/strong><\/h4>\n

What really adds value to a property? – Gavin Hulcombe<\/h2>\n

Kevin<\/b>:\u00a0 I often wonder with property whether or not there are any improvements you can add to a property that would always add value, and which, in fact, are the ones that don\u2019t add value. I\u2019ve spoken to a lot of investors who believe putting in a pool is going to add a lot of value, maybe adding another bedroom might do just that.
\nLet\u2019s try and find out from a valuer what he believes does actually give you extra bang for your buck when you\u2019re doing renovations.
\nGavin Hulcombe is the chairman of Herron Todd White Trading and also Queensland managing director for Herron Todd White.
\nGavin, thanks for your time.
\nGavin<\/b>:\u00a0 Morning.
\nKevin<\/b>:\u00a0 Gavin, in your experience, are there any areas of a property that will always add value?
\nGavin<\/b>:\u00a0 I think I\u2019m always a bit cautious about saying always, but I think there are areas where you have the best potential for adding value. I think if you start focusing on the kitchens, the bathrooms, outdoor living areas, that\u2019s what really draws a lot of the lifestyle decisions that people make.
\nThat\u2019s what they see as being most important, so I think if you do it right and if you do it well and you don\u2019t get too carried away in terms of over-capitalization, I think they\u2019re the areas that I\u2019d be concentrating on.
\nKevin<\/b>:\u00a0 Are there some areas that are purely there for lifestyle that probably won\u2019t add any value? I\u2019m citing here pools as an example.
\nGavin<\/b>:\u00a0 Of course, that\u2019s always the first one that comes to mind. That\u2019s a lifestyle decision not a financial decision in most cases. They look great, they\u2019re great in the summers and those sort of things, but it is really a lifestyle decision; it\u2019s not a financial decision.
\nAs a general rule of thumb, you would like to get about half your money back on a pool, depending on where it is. Tennis courts can be a bit the same, albeit you don\u2019t fit tennis courts on most suburban blocks. Yes, there are a few things like that, which are really about improving the livability rather than adding value.
\nKevin<\/b>:\u00a0 What about things like double garages or even adding a bedroom to a property?
\nGavin<\/b>:\u00a0 Look, it\u2019s one of these things that is a bit difficult to generalize. Certainly, the second garage is really important, particularly if it\u2019s a family area and the expectation is that you want to be able to garage two cars. Then yes, in those areas, the second garage is really important.
\nThere are other areas where lifestyles are changing. People are saying, \u201cWell, actually I don\u2019t need a car.\u201d If you\u2019re living near city locations and everything\u2019s within walking distance or there\u2019s good public transport, then the second car is less important. Again, you probably just have to do your research and understand the local drivers of the market, rather than getting caught up in generalizations.
\nBedrooms, they\u2019re often expensive. Any additions like that often will cost you more on a rate per square meter than what you could buy the original property for. But I think one of the things to really take into account is the cost of selling the house and buying another house verses adding additional rooms or extensions.
\nOn a $500,000 house, the transfer costs alone are something like 7.5% of that, so it\u2019s a substantial cost that you lose just by selling a property and buying another one. Sometimes if you step back and say actually, if you reinvest that money into an extension or modifications, you actually end up better off rather than selling and buying again.
\nKevin<\/b>:\u00a0 I think you make a very good point there, too, and that is looking at some of the additions you can make to a property. It probably depends on its location. As an example, an outdoor living area is probably going to be more attractive in, say, a Queensland market as opposed to a Victorian market or an area where it\u2019s a lot colder. Would that be true?
\nGavin<\/b>:\u00a0 Absolutely. And even aspect \u2013 if it\u2019s a northeast aspect where you\u2019re adding your living area, then that becomes very livable. If it\u2019s direct west facing or it has no outlook, then the added value is perhaps limited.
\nYes, it is the specifics, but as you say, quite rightly, if this is an area where it really does facilitate outdoor living, ala Queensland, then that\u2019s where people want to be, and certainly, they will pay more for it there then somewhere where you\u2019re exposed to the elements and it\u2019s just not a very pleasant environment to sit.
\nKevin<\/b>:\u00a0 Gavin, thank you so much for your time. It\u2019s been great talking to you.
\nGavin<\/b>:\u00a0 You\u2019re welcome. Thank you.
\n <\/p>\n

The 5 levels of wealth – Michael Yardney<\/a><\/h2>\n

Kevin:<\/b>\u00a0 My good friend Michael Yardney<\/a> has developed a wealth pyramid, a pyramid of financial independence. There are four steps to that, and we\u2019re going to look at those steps today as we talk to Michael.
\nGood morning, Michael, and thanks again for joining us.
\nMichael:<\/b>\u00a0 Thanks, Kevin.
\nKevin:<\/b>\u00a0 Many Australian have chosen \u2013 haven\u2019t they \u2013 to invest in property, develop their financial freedom and get themselves out of the rat race. I know you\u2019ve analyzed this with a number of people you work with and you come up with these different levels.
\nWhat\u2019s the first level, Michael?
\nMichael:<\/b>\u00a0 Let\u2019s talk about this pyramid first, and then \u2013 you\u2019re right \u2013 we\u2019ll talk about the four steps and how to work your way up.
\nI think it\u2019s interesting for us to consider where are we sitting at this? Level zero is really what I call financial instability. Since most Australians still today live from paycheck to paycheck, they really are at this level, Kevin. They\u2019re financially unstable. I\u2019m not saying they\u2019re poor, but if they lose their job, if they have an emergency, if they have an illness or their car breaks down, they have no money reserves, they have nothing to cope.
\nHow can they handle these unexpected burdens that life dishes out? Often, the only way they can is to borrow more, get further into debt, and this only creates more financial hardship. The bottom level is financial instability.
\nKevin:<\/b>\u00a0 It\u2019s a bit like lurching, isn\u2019t it? You lurch from one disaster to another, really.
\nMichael:<\/b>\u00a0 Yes. Interestingly, when they earn more, it doesn\u2019t help them any. They end up spending more, and somehow or another, they make sure that the money just lasts out the month or, in general, it\u2019s the other way around; it actually cuts out a few days before the end of the month.
\nKevin:<\/b>\u00a0 How do you achieve the first level? How do you start to become independent, Michael?
\nMichael:<\/b>\u00a0 The next step is to go up a level in this pyramid that I call financial stability. To achieve this most basic level, you have to be at the level where you\u2019ve accumulated enough liquid assets \u2013 it could be savings, it could be money in a line of credit, or something like that \u2013 to cover your current expenses for a minimum of six months, so you\u2019re financially stable if things go wrong. You have your private health insurance, you have some life insurance to protect you and your family\u2019s lifestyle if something goes wrong.
\nYou attain this financial stability and then you suddenly get a bit of a comfort. You feel a little bit of the pressure off. You\u2019re not as much on the treadmill, knowing that if anything unexpected comes along, your family\u2019s lifestyle won\u2019t be unduly compromised. You\u2019re going to have adequate time to look for new sources of income to put you back on track again, Kevin.
\nKevin:<\/b>\u00a0 This is the foundation, Michael. From here, do you start to build?
\nMichael:<\/b>\u00a0 Yes, you do. We\u2019ll talk about how you get there next, but as we work up the levels of the pyramid, level two is what I call financial security. Where you started at instability, stability, and financial security \u2013 which is where many people want to get \u2013 is they\u2019ve now accumulated enough assets \u2013 maybe it\u2019s a sufficiently large property portfolio \u2013 to generate enough passive income to cover their most basic expenses. This would be things like your mortgage and your tax payments, your car expenses, and your grocery bills.
\nWhen you reach this level of financial security, you could stop working and maintain \u2013 I guess \u2013 a very simple, a very basic lifestyle. But smart property investors want to go further than that, Kevin\u2026
\nKevin:<\/b>\u00a0 What is the next level?
\nMichael:<\/b>\u00a0 \u2026To get to what I call financial freedom. Level three is financial freedom. You\u2019re financially free when you\u2019ve accumulated sufficient assets to generate enough passive income not to only maintain the lifestyle you desire \u2013 not your current lifestyle but the lifestyle you desire \u2013 but it\u2019s also going to help pay all of your expenses without ever having to work again. That, in my mind, is by building a substantial asset base that you then eventually lower your loan-to-value ratio and get a cash machine.
\nWhen you\u2019re a successful investor, you don\u2019t have to work again, but interestingly, we find that a lot of people still do, don\u2019t they?
\nKevin:<\/b>\u00a0 Because they enjoy it, Michael. They enjoy what they\u2019re doing.
\nMichael:<\/b>\u00a0 That is right.
\nThe next and the last level in my mind is financial abundance, level four. A small group of sophisticated property investors achieve what I call financial abundance. That\u2019s when their portfolio works overtime. They\u2019re free of all of the financial pressures, and they have enough surplus income that it not only pays for their lifestyle and all their expenses but then they start contributing back to the community, often through charitable work, sometimes through donations. But despite that, their asset base keeps growing. It\u2019s sort of working overtime compounding. That\u2019s the real cash machine in my mind, Kevin.
\nKevin:<\/b>\u00a0 How do you move on, Michael? How do you climb up to becoming the top?
\nMichael:<\/b>\u00a0 In my mind, there are four steps to it, Kevin. The first one is to decide to become wealthy. I know that sounds basic, and most people say, \u201cYes, I\u2019ve already decided,\u201d but most Australians actually never make a firm commitment.
\nLife gets in the way, they\u2019re busy, they\u2019re having their children, they\u2019re building their homes, they\u2019re enjoying their life, they\u2019re traveling, and so what they are not doing is putting a firm plan into place. You have to truly commit to getting yourself financially independent to become wealthy, step one.
\nThen step two is invest in your financial education. If you\u2019re a beginning investor, you have to focus on increasing your financial education to fast track your success. There are all these great resources like Real Estate Talk with all of the experts you have on your show, going to seminars, watching DVDs, great podcasts like this.
\nIf you\u2019re a more experienced investor, your priority is to grow your asset base sufficiently to become financially free. But you have to keep learning even when you get to that level, so you learn more about finance and tax and asset protection.
\nThe third step is don\u2019t wait until you know it all to get started because if you do, you\u2019re never going to take the first step. One of the things I\u2019ve learned early in the piece was the paradox of knowledge: the more you learn, the more you realize you don\u2019t know.
\nMany people say, \u201cIf I knew it all, I\u2019d be safe; once I get all this right and know exactly where the market is, I\u2019ll start doing things.\u201d How do you know when to invest? Kevin, in my mind, you have to have the courage and conviction to take action knowing that you\u2019ll never know it all but you\u2019re going to learn along the way, educating yourself as you move up the ladder.
\nThe last of the four steps is surround yourself with like-minded people. There is no such thing in my mind as a self-made millionaire. Every financially independent investor I know has surrounded themselves with a smart team of advisors and professionals and like-minded individuals. They get a mentor, they join other people who have similar journeys planned, and that way, they can get there a lot faster and safer, and it makes the journey much more pleasant.
\nKevin:<\/b>\u00a0 The wonderful thing about money and wealth \u2013 I\u2019ve read this in one of your books, too, Michael \u2013 is that it doesn\u2019t discriminate. It doesn\u2019t care who you are, who you think you are or even what your parents thought or did or even said to you. It doesn\u2019t discriminate at all, does it?
\nMichael:<\/b>\u00a0 No. Each day starts with a clean slate, which means you have the same rights and the same opportunities as everyone else, so my suggestion is start making your way up that investment ladder to financial freedom today.
\nKevin:<\/b>\u00a0 Great words. Thank you, Michael. Lovely talking to you.
\nMichael Yardney<\/a>:<\/b>\u00a0 My pleasure, Kevin.
\n <\/p>\n

The facts about tax benefits on replacement items – Ed Chan<\/h2>\n

Kevin:<\/b>\u00a0 We\u2019re going to answer a question on the show now that came in from Robyn. Thanks for the question. And by the way, keep those questions coming in; just send them in through the website. Ed Chan is going to answer this question for us. Hi, Ed.
\nThank you for joining us in the show.
\nEd:<\/b>\u00a0 Hi, Kevin. Thanks for having me.
\nKevin:<\/b>\u00a0 Ed Chan, of course, from Chan & Naylor. The e-mail question from Robyn says, \u201cThank you for a wonderful show. I\u2019ve been listening for a number of years and have gained an enormous amount of knowledge.\u201d Thank you, Robyn. We really appreciate your feedback.
\nRobyn says that she has replaced a number of items in her rental property this year, 2015\u20132016, held in her own personal name. She understood from our program that she could claim up to $800 as an example \u2013 it was a couple who owned the property together, tenants in common \u2013 yet her accountant says that she can only climb up to $300 and others have to be depreciated. Can we please help?
\nRobyn, we will. We\u2019ll ask that question of Ed Chan.
\nEd, what would be your answer to Robyn?
\nEd:<\/b>\u00a0 I\u2019m not familiar with the $800 limit that you made reference to. When you spend money on a property, it\u2019s generally to bring the property back to what its original conditions were, and it falls into two categories. It\u2019s either repairs and maintenance or it\u2019s capital.
\nIf it\u2019s repairs and maintenance, it\u2019s allowed fully as a tax deduction. The definition of repairs and maintenance is to replace what was there with a similar material. For example, it was a wooden fence and you replaced it with another wooden fence; that\u2019s deemed a repair, so it\u2019s 100% deductible.
\nHowever, if you improve the fence from a wooden fence to a brick fence, then that\u2019s an improvement on what you had before, and that constitutes a capital improvement. With capital improvements, you can only depreciate the item, and the depreciation rates range between 2.5% to about 30%. Over a five-year period, you\u2019ll be able to claim the whole lot back.
\nKevin:<\/b>\u00a0 There you go, Robyn. I hope that\u2019s clarified for you. I\u2019m sure it has.
\nEd Chan from Chan & Naylor, thank you so much for your time. It\u2019s always great to have you on the show. Thanks, mate.
\nEd:<\/b>\u00a0 Thanks for having me, Kevin.
\n <\/p>\n

How to tickle the banks fancy – Andrew Mirams<\/h2>\n

Kevin<\/b>:\u00a0 Earlier in the show, we were talking to Gavin Hulcombe from Herron Todd White, who was talking about what improvements to a property actually add value. There is another aspect about values, and I want to ask this question of a financier, and that is what, in his opinion, do valuers look for in a property, and what are the key things that he\u2019ll look at.
\nAndrew Mirams from Intuitive Finance joins us.
\nAndrew, thanks again for your time.
\nAndrew<\/b>:\u00a0 My pleasure Kevin. Thanks for having me.
\nKevin<\/b>:\u00a0 In your experience, what is it that valuers look for? What\u2019s going to impact the valuation of a residential property?
\nAndrew<\/b>:\u00a0 There are a couple things that a valuer would look at. Probably the first key is the way it\u2019s presented, it\u2019s aspect, is it neat and tidy, is it in a good state of repair, or is it run down, does it need work? All that sort of things a valuer will look at.
\nIf instructed from a bank, they\u2019re looking at how do they get out? If the client can\u2019t meet their payments and they have to sell it, what\u2019s their get out? How do they realize the property to get their funds back?
\nThe first thing to get a great valuation is present your property really well. Tart it up. Make it neat and tidy, as if you\u2019re almost preparing it for sale. So that\u2019s probably the first tip: when someone\u2019s having a valuer come around present the property as if you\u2019re going to go sell it.
\nKevin<\/b>:\u00a0 That\u2019s a very good point. I just pick you up on that, too, I think valuers will look at it very, very commercially so you take the emotion out of it and they\u2019ll look at it as a buyer will look at it.
\nAndrew<\/b>:\u00a0 Absolutely \u2013 and\/or an agent would want to sell it to attract the best possible price. If you\u2019re trying to get a premium for your property, please present it in a great manner. Also, it doesn\u2019t hurt to have some evidence with you of how you might have arrived at that sales figure.
\nKevin<\/b>:\u00a0 Yes.
\nAndrew<\/b>:\u00a0 I guess in terms of getting to a figure, just what do they look at? There are a couple of methods they\u2019ll use. The first one\u2019s called a comparable or comparison method. The second one is called a summation method.
\nWith the first one, really what they\u2019re looking at is your property might be a three-bedroom, two-bathroom, two-car-space in a suburb in Melbourne, Brisbane, Sydney, wherever it is. They look at like properties that are selling as yours, with a similar aspect, similar finishes, and what sort of market or what sort of salability they\u2019re going for in your market. That\u2019s pretty much how they get to a comparable.
\nOn occasion when we get a difference of opinion, I guess it always comes down to a valuer\u2019s opinion of what a comparable is and what a client and\/or financier\u2019s opinion of what a comparable might be.
\nThe second method I said was a summation method. Really, that takes into effect the value of your land, the value of the improvements \u2013 it\u2019s the house, pool, garage, landscaping, anything that might be in nature architecturally or anything else like that in relation to the property.
\nFor example, in Melbourne, you can often get a great premium for your Edwardian, Victorian places with the beautiful lattice and things like that, if they\u2019re presented really well because they\u2019re unique and they have a rarity or scarcity factor.
\nThey\u2019re the two methods that people look at, Kevin, when all the value they look at when they\u2019re looking to make a decision.
\nKevin<\/b>:\u00a0 Do they use a combination of both of those methods or is it one and\/or the other?
\nAndrew<\/b>:\u00a0 It\u2019s probably fair to say a combination, but that\u2019s really property specific, then. It\u2019s probably fair to say they\u2019ll use the summation to look at what they think it would cost you to buy that land and put those improvements on it.
\nI think that needs to be supported by \u201cDoes that stack up in the market in terms of what other places that are similar to these level of improvements and features that are getting in the market, as well?\u201d It will generally be a combination.
\nKevin<\/b>:\u00a0 Yes. That second one that you mentioned is something you can have very little influence over is. The size, the shape, the location, the views \u2013 all of those are built into the property, you can\u2019t change them. But you certainly can have some impact on that comparison method.
\nAndrew<\/b>:\u00a0 Absolutely. The level of your improvements and how you maintain them, as I said earlier, is probably the real key that you can have an impact over.
\nJust because you\u2019ve had your first and second child there, and that\u2019s emotional for you, that doesn\u2019t matter to the valuer. People aren\u2019t going pay a premium for your memories; they\u2019re going to pay a premium for the level of features and what the market is dictating at the time.
\nWhen a valuer does go in, if you said, \u201cWell, how then does a valuer arrive at this decision?\u201d
\noften before they even go to a property, in terms of a residential property, they\u2019ll do some research on the land, what size, and they\u2019ll have an idea of what like properties are doing.
\nThen they\u2019ll generally visit a property, if they\u2019re doing a full valuation, go around take some photos. That\u2019s where I have plenty of examples of valuers, if they think it\u2019s a bit short of what a client\u2019s opinion is, they\u2019ll take a photo of a crack in the wall or the dishes lined up on the sink, mate. So that\u2019s why I\u2019m saying, have it cleaned up.
\nKevin<\/b>:\u00a0 Yes. Good stuff.
\nAndrew<\/b>:\u00a0 They\u2019ll measure the allotment of the land, they\u2019ll look at other physical improvements, and the level of the finish, and then they\u2019ll generally prepare and provide their report on their assessment. That\u2019s how they arrive at a residential valuation.
\nKevin<\/b>:\u00a0 Very good insight there from Andrew Mirams at Intuitive Finance; and a great website, too. You can always link to that through Real Estate Talk, the website there. Andrew, of course, has his own channel and that will take you through to Intuitive Finance where you\u2019ll find a lot more blogs and articles, as well.
\nAndrew, thank you so much for your time.
\nAndrew<\/b>:\u00a0 My pleasure, Kevin. Thank you.
\n <\/p>\n

Why cash flow positive property is NOT a strategy – Margaret Lomas<\/h2>\n

Kevin<\/b>:\u00a0 I remember talking to Margaret Lomas from Destiny Financial Solutions about this time last year. I said, \u201cMargaret, how is cash flow? How do you see cash flow as a strategy?\u201d and you rightly pointed this out to me.
\nHi Margaret, how are you going?
\nMargaret<\/b>:\u00a0 I\u2019m going really well.
\nKevin<\/b>:\u00a0 Cash flow is not a strategy; it\u2019s more an outcome.
\nMargaret<\/b>:\u00a0 Exactly. I know when we did talk about this last year, you asked me whether or not it was possible for people to use positive cash flow as strategy for buying property, and I said to you then that the thing about positive cash flow is that it isn\u2019t a strategy; it is simply a tax outcome. And because all property is different, then it\u2019s a tax outcome that will also be different for each individual investor.
\nLet me give you an example. Let\u2019s say you and are were going buy a property and we found a property next door to each other. We\u2019re going to buy them to the same price, they would rent for the same amount, and fairly similar properties.
\nBut Kevin, you\u2019re very wealthy, and we all know how much money you earn, so you\u2019re in that top tax bracket. And I\u2019m a poor, struggling writer, so I don\u2019t pay very much tax at all. I\u2019m right in that bottom bracket.
\nAlso, you happen to get one that has an upgraded kitchen, it\u2019s had a brand new bathroom, so you\u2019ve got a bunch of on\u2011paper deductions that I can\u2019t get out of my property because I don\u2019t have those kinds of deductions available.
\nThe bottom line for both of us will be very, very different. Even though we\u2019re getting the same purchase price and the same rent return, you may well get a positive cash flow because you\u2019re going to get back more of your tax dollars because you pay more tax in the first place, plus, you have all that on\u2011paper, which you don\u2019t pay anything out for but you get some of your tax dollars back for.
\nOn the other hand, I haven\u2019t paid much tax, so there\u2019s not much to get back. I\u2019ve got nothing on paper, so my property is likely to be negative cash flow because I didn\u2019t have those tax dollars to plug up the gap between income and outgoings.
\nKevin<\/b>:\u00a0 It\u2019s a very good example, Margaret.
\nLet me ask you this question. People who look for positive cash-flow properties, would you say they\u2019re more risk adverse \u2013 they just don\u2019t want to take that risk?
\nMargaret<\/b>:\u00a0 Maybe. Let\u2019s just sort of talk about how people go through that process, because people call me all the time and say, \u201cLook, I want to buy a positive cash flow, and I only want to buy a positive cash flow.\u201d
\nWhat that mean is they\u2019re seeking a property that\u2019s going to be able to give them enough money that they\u2019re not really dipping into their own pocket. That\u2019s really what their strategy is and that\u2019s what they\u2019re aiming to achieve.
\nNow, we need to understand, as I just said, all properties are different. There is a basis that you can start on, though. Some properties, no matter how much tax you get back, will probably still be negative if it\u2019s got really low yield.
\nAnd if we\u2019re in a really low interest rate environment, then that makes it hard to get positive cash flow too, because the more money you pay in interest, then the less money you\u2019re going to have left over to meet all of your other costs.
\nIf we\u2019re in a low enough interest rate environment, and if we also can find areas where the rent returns aren\u2019t too bad \u2013 say 5 to 6% in the minimum \u2013 then we could also find properties that have a decent amount of on\u2011paper depreciation \u2013 so they\u2019re properties that are a little bit newer \u2013 then you have a better chance of getting a positive cash flow.
\nNow, the other thing that people have to understand is that first of all, it\u2019s unusual and unlikely for you to find a positive cash flow property that\u2019s positive cash flow from day one. When you first buy a property, remember that at that point in time your expenses are going to be as high as they\u2019re ever going to be, and your rent is going to be as low as it\u2019s ever going to be.
\nOver time, rent goes up and expenses go down because you start to repay debt. So a property that\u2019s negative cash flow can become positive cash flow within a couple of years of buying it. That\u2019s the first thing.
\nAn investor should probably seek out a property that\u2019s likely to become positive cash flow as soon as possible, because it\u2019s already got good rental yield. But the trap that investors fall into is in looking for this positive cash flow, they often buy areas that don\u2019t have anything else going for it.
\nKevin<\/b>:\u00a0 Yes.
\nMargaret<\/b>:\u00a0 The important thing to understand about cash flow is cash flow might keep you in the market because it means that you are not financially burdened by a property, but unless there are other things about that area, such as the growth drivers that I always talk about, then if the property never grows, then you\u2019re not going to achieve anything because it\u2019s the growth in the asset that get you out of the market when you retire. You have the build up a net worth in order to be able to afford to leave the paid workforce.
\nKevin<\/b>:\u00a0 Now, you talked about growth drivers there. You and I have chatted on previous occasions, and if you only go back and search through some of the interviews that I\u2019ve done with Margaret, we actually do touch on those key drivers.
\nMargaret<\/b>:\u00a0 There\u2019s so much information out there at the moment, yet still, we have too many of the property experts hawking the same message. They talk about things that really are relevant in terms of whether or not a property is going to perform well for you.
\nPeople still buy property emotively, as well, so they still want to buy property according to one they can get for a good price, or one that they think they can get a rental return for without having to look at what really drives growth and the importance of those growth drivers.
\nKevin<\/b>:\u00a0 Margaret, once again, thank you for your time. It\u2019s always great talking to you.
\nMargaret<\/b>:\u00a0 Thank you.<\/p>\n","protected":false},"excerpt":{"rendered":"

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