{"id":19735,"date":"2017-12-22T01:00:46","date_gmt":"2017-12-21T14:00:46","guid":{"rendered":"https:\/\/realestatetalk.com.au\/?p=19735"},"modified":"2017-12-22T01:00:46","modified_gmt":"2017-12-21T14:00:46","slug":"when-cash-flow-hurts","status":"publish","type":"post","link":"https:\/\/channels.realty.com.au\/realtytalk\/when-cash-flow-hurts\/","title":{"rendered":"When Cash Flow Hurts"},"content":{"rendered":"

Properties that generate a high cash flow are in significant demand. However, investors may fail to consider the downsides of positive cash flow investments \u2013 yes, they do exist \u2013 which can turn a cash flow gold mine into a bottomless pit. Jacqueline So reports<\/em>
\nMany experts advocate for high cash flow properties as good investments. Indeed, these are popular options for investors because significant cash flow allows you to pay off your loans sooner. They also help boost the bank\u2019s impression of you and can be leveraged smartly so you can get into future properties faster.
\n\"\"Moreover, positive cash flow investments are generally situated in inexpensive regional pockets where purchase prices and stamp duty are comparatively low. Thus they are ideal for first-time landlords and investors on a budget.
\nSeasoned investors can utilise positive cash flow to balance out their investments in growth areas that are less profitable, especially with the overvaluing of properties in such areas. The cash earned can also support the funding of another addition to the portfolio.
\nStill others subscribe to the view that yield, rather than growth, is the best indicator of a property that will perform well.
\nAge is a factor that also comes into play. With changes in lifestyle preferences, people in their 30s\u201350s tend to follow a cash flow-centric strategy in their property investing, given their rising responsibilities and expenses.
\nWith the potential for a turn in the housing market due to economic factors, long-term investments can end up failing to generate strong capital growth, and instead result in losses. By contrast, positive cash flow property investments generate profit each month, giving the landlords a regular return on their investments.
\nDownsides of cash flow investing\u00a0<\/strong>
\nWith so many positives to this\u00a0investment strategy<\/a>, you may be wondering what downsides could possibly exist.
\nThe truth is, building an investment strategy around cash flow can be dangerous, because there are many factors that investors fail to consider in the process.
\nFor instance, 30 years ago a cash flow strategy may have worked, but now the initial capital required for deposits and costs is often more than most Australians can afford.
\nWhere cash flow properties are affordable, which is generally in regional markets, price movements can be quite volatile. Given the location of most high cash flow properties outside the metro, they can be easily affected by the whims of economic cycles and, as a result, capital growth is not consistent in the long term.
\nIf you buy in an area with limited job opportunities, the socio-economic status of potential tenants can also make it difficult for you to achieve your desired rental rate.
\nIt may also be difficult to get financing for regional properties, because some lenders impose restrictions on postcodes, given the small populations in such pockets.
\nAnother part of the equation investors often forget about is tax: the additional income generated is not free money. You will have to pay tax on those earnings, which could see high-income earners saying goodbye to almost half of their profits. As a result, these investors are actually earning less from their investments than they think they are.
\nAll of this is to say that focusing solely on cash flow as a strategy might not be the best option for every investor. It may fool you into thinking that you are wealthy or comfortable as you have assets sitting there that seem to not cost you anything, but this thinking fails to take into consideration how much wealth you could be creating if your funds were invested in better-quality, capital growth properties.
\nResearch and location<\/strong>
\nTo avoid the pitfalls of cash flow investing, Real Estate Investar suggests that investors look for suburbs offering an 8\u201316% yield and that are within 3\u20135km from a university. In these areas there is a greater chance of finding tenants because of the student population looking for nearby rentals.
\nExtensive research into your desired suburbs is also vital to help you determine market value accurately and set an appropriate budget that facilitates positive cash flow. Study the overall market as well, and analyse whether or not the property\u2019s cash flow and growth prospects are high.
\nIn times like this, a good property or financial adviser can be an asset, helping you to make sure that what you\u2019re doing fits your profile from a financial and risk management point of view.
\nBuyers should also try to purchase below the median price so they can maximise their returns. Dual-income properties, such as homes with granny flats, can also help drive strong cash flow and considerable returns.
\nTo drive up demand for a rental, conducting some reno work to upgrade a home is always a good idea. Tenants favour properties that have a \u2018ready to move in\u2019 quality \u2013 sometimes all it takes is a new coat of paint and the replacement of some old or broken fixtures.
\nMix it up<\/strong>
\nSome experts also recommend you attempt to get the best of both worlds by developing a portfolio that is an ideal mix of capital growth and cash flow properties.
\n\u201cYou can\u2019t build a portfolio without both types of investments,\u201d explains Todd Hunter, founder and director of wHeregroup.
\n\u201cThere are lots of investors out there with a ton of equity, but they don\u2019t have the serviceability \u2013 then you have investors with a lot of cash flow, but they don\u2019t have the equity for the deposit. You have to respond to market conditions, and that requires a combination of both cash flow and growth properties.\u201d
\nIt\u2019s all about balance \u2013 you don\u2019t have to disregard a goal of investing in a property with significant growth potential, but you do have to be able to still prove to financers that your investments are paying off.
\nOn the flip side, to be a successful property investor it\u2019s also important to have a vision and a long-term plan. By keeping these things in mind, you will be able to determine the perfect strategy for you.
\nOriginally published as: http:\/\/www.yourinvestmentpropertymag.com.au\/property-management\/shortterm-rental-property-managers-what-are-the-benefits-243731.aspx \u00a0<\/a><\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

Properties that generate a high cash flow are in significant demand. However, investors may fail to consider the downsides of positive cash flow investments \u2013 yes, they do exist \u2013 which can turn a cash flow gold mine into a bottomless pit. Jacqueline So reports…<\/p>\n","protected":false},"author":176692471,"featured_media":19737,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_feature_clip_id":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_post_was_ever_published":false},"categories":[13,31],"tags":[70],"class_list":["post-19735","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-latest-story","category-your-investment-property","tag-featured"],"yoast_head":"\nWhen Cash Flow Hurts - Realty Talk<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/channels.realty.com.au\/realtytalk\/when-cash-flow-hurts\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"When Cash Flow Hurts - Realty Talk\" \/>\n<meta property=\"og:description\" content=\"Properties that generate a high cash flow are in significant demand. 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