{"id":21137,"date":"2018-05-17T01:00:24","date_gmt":"2018-05-16T15:00:24","guid":{"rendered":"https:\/\/realestatetalk.com.au\/?p=21137"},"modified":"2018-05-17T01:00:24","modified_gmt":"2018-05-16T15:00:24","slug":"cash-flow-vs-capital-growth-steve-waters","status":"publish","type":"post","link":"https:\/\/channels.realty.com.au\/realtytalk\/cash-flow-vs-capital-growth-steve-waters\/","title":{"rendered":"Cash flow vs capital growth \u2013 Steve Waters"},"content":{"rendered":"

I guess it would be fair to say that there\u2019s been a lot written and spoken about whether or not you should be looking at cash flow versus capital growth when it comes to property investing. Well, Steve Waters<\/strong>, who is the founder and director of Right Property Group says if that\u2019s what you\u2019re doing, you\u2019re making a mistake. Today we will find out why.
\nTranscript:<\/strong>
\nKevin:<\/strong>\u00a0 I guess it would be fair to say that there\u2019s been more written about and more spoken about whether or not you should be looking at cash flow versus capital growth when it comes to property investing. Well, Steve Waters, who is the founder and director of Right Property Group says if that\u2019s what you\u2019re doing, you\u2019re making a mistake. Let\u2019s find out why. He joins me.
\nGood day, Steve. How are you doing?
\nSteve:<\/strong>\u00a0 Very well. Yourself?
\nKevin:<\/strong>\u00a0 Good, mate. Good to be talking to you. Thank you.
\nI\u2019ve read your blog article. Explain to me just why you think it\u2019s a mistake.
\nSteve:<\/strong>\u00a0 I think mainly if you put all your eggs into one basket by either chasing the growth or the cash flow, you\u2019ll be left short somewhere in the future. There\u2019s this premise that if you\u2019re chasing the high cash flow, then there won\u2019t be the growth, and if you\u2019re chasing the growth, there won\u2019t be the cash flow. I think balancing the numbers is more to the point.
\nKevin:<\/strong>\u00a0 Where does it all fall apart?
\nSteve:<\/strong>\u00a0 If we look at growth, as I say usually, it does. The higher growth properties, as I say, usually do have the smaller cash flow. I think if we\u2019re comparing today\u2019s cost of money, so interest rates, where perhaps people\u2019s disposable income is okay, my fear is when it gets to 5% or 6% or whatever the average is, that these properties will start to a dramatic effect on the household budget.
\nLikewise, with the opposite being the higher cash flow properties, those who are chasing that alone potentially won\u2019t have the growth. And at the end of the day, it is that equity or that capital appreciation that\u2019s going to get us to where we want to be.
\nKevin:<\/strong>\u00a0 Is there a right and a wrong time? Let\u2019s have a look firstly at cash flow. When is it time to look at cash flow?
\nSteve:<\/strong>\u00a0 I think you should always be looking at cash flow. For me personally and how we help our clients, it\u2019s more about building or creating that balanced portfolio. We\u2019re looking to establish a portfolio that has some higher growth properties but also some properties that fundamentally have higher cash flow to support those negative cash flow properties. And this is all pre-tax dollars, of course.
\nKevin:<\/strong>\u00a0 I guess it comes down to your stage in life, too \u2013 doesn\u2019t it \u2013 and also your risk profile, I guess, if you\u2019re going to be chasing capital gains over cash flow. I guess early investors, too, have to sacrifice a bit of cash flow, don\u2019t they?
\nSteve:<\/strong>\u00a0 When we all first started, yeah, we did whatever it took. Once again, you do need that growth because it\u2019s going to perpetuate you into the next property, because you can\u2019t save the deposits quick enough, so to speak.
\nOnce again, I\u2019m a massive fan of balancing the numbers. Just like you would as a business, you\u2019re looking at the bottom line and constantly adjusting.
\nKevin:<\/strong>\u00a0 How many people in Australia do you know are actually property investors and how many are multi-property investors?
\nSteve:<\/strong>\u00a0 The stats, it\u2019s around about 7% of people invest in property, and then it drops significantly those with multiple properties, and the more properties, the less a percentage.
\nKevin:<\/strong>\u00a0 What stops someone? They get one property, is it because they\u2019ve made a mistake or their risk profile changes a bit that they don\u2019t move on to their second or third property?
\nSteve:<\/strong>\u00a0 I think it\u2019s a good question. AI think it\u2019s a combination. Usually, life does change, and it\u2019s certainly no secret for those who have multiple properties that the more properties that you have, the more work is involved. It\u2019s certainly not a passive asset vehicle.
\nLife does take twists and turns, whether that be more kids, education, and what have you. The household budget begins to shrink and the whole argument around affordability and what they can contribute from the household budget to support properties really becomes a major factor.
\nBut I\u2019d also say people\u2019s risk profile has a lot to do with it, and sometimes just one is enough.
\nKevin:<\/strong>\u00a0 Steve, when someone gets to one property and they think \u201cOh well, I\u2019m now a property investor, I\u2019ve made it,\u201d I forget the phrase you used, but it was almost saying that it\u2019s not a \u201cset and forget\u201d proposition.
\nDo you think where a lot of investors probably go wrong is that they just actually start but never quite finish the journey?
\nSteve:<\/strong>\u00a0 I think that\u2019s a really good point. And with today\u2019s technology, as we were speaking about earlier on, there are so much information out there that the consumer can really use to better their position in terms of due diligence, but it is a lot of work.
\nI think there is a little bit of a fallacy that their property is passive. Once someone gets one or two properties, the workload involved, and not just the workload, of course, but the ups and downs, the shorter cash flow months when there\u2019s repairs and maintenance or higher cost of interest rates, whatever it may be, it does seem to taint the overall picture.
\nKevin:<\/strong>\u00a0 Is it a matter of being constantly vigilant, always looking at your portfolio, reviewing it, and looking at trimming off at the bottom \u2013 making your portfolio more profitable?
\nSteve:\u00a0\u00a0<\/strong>100%. I think if you approach property as a \u201cset and forget\u201d or a passive asset vehicle, I think you\u2019ll really do yourself an injustice. I know we are constantly reviewing portfolios. We do it every quarter for a normal portfolio, and I say \u201cnormal\u201d in inverted commas.
\nBut I think if you go and invest hundreds of thousands of dollars, it is something that you should take seriously and have your finger on the pulse, whether that be interest rates, rents, whatever it may be. It\u2019s a big business to you.
\nKevin:<\/strong>\u00a0 Good advice. Steve Waters there, who\u2019s the founder and director of Right Property Group. Steve, thank you so much for your time.
\nSteve:<\/strong>\u00a0 Thank you. Appreciate it.<\/p>\n","protected":false},"excerpt":{"rendered":"

I guess it would be fair to say that there\u2019s been a lot written and spoken about whether or not you should be looking at cash flow versus capital growth when it comes to property investing. 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