How can you find a unicorn property that puts money in your pocket from the start? One that leads to buying more properties, and pays handsomely while you sleep?
It’s not as difficult as it seems, and we’re going to show you how with 9 proven strategies for buying positive cash flow properties.
First, let’s look at what positive cashflow means. There’s a difference between positive cashflow and positive gearing, but ultimately they’ll both put money in your pocket.
For the sake of this guide, we’re going to call either scenario ‘cash flow positive’.
Regardless of when the profit comes in, the benefit is that you’re creating positive passive income via an investment property, which helps in multiple ways.
Benefits of a positive cash flow property:
An investment property bringing in genuine income is a step towards growing a portfolio of multiple properties and assets that can help you retire earlier, live the life you want, and bring unmatched financial security.
It’s one of the secrets of getting rich through property, if it’s right for your goals.
The best way to know is to talk to a professional who can help create a long-term blueprint for your portfolio based on your income, circumstances, and your eventual financial goals.
Colonial Pacific are a team of professionals who are specialists in cash flow positive properties, and offer 100% free consultations to get you started. Book a session now with one of our friendly experts.
Now, let’s get into it.
How to create a positive cash flow property
1. How to create a positive cash flow property
Some people think only old, existing houses can achieve positive cashflow, but that’s misleading. New builds have incredible potential to create profit from day one, because:
We’ll flesh out some of these points throughout the guide, but it’s well worth noting that new builds have characteristics that lend themselves more to positive cash flow than existing homes, like asset depreciation (see next).
2. Max out your investment property tax benefits
This is where new houses absolutely shine. You won’t get better tax returns on any property quite like a new build.
Depreciation of assets (for example, fixtures, appliances, and even flooring) are calculated based on their lowering value over time.
New assets can be claimed at the highest depreciation rate because they’re brand new. In older homes, depreciating assets have lost much, if not all of their value and cannot be claimed.
You can use depreciating asset ‘losses’ as a tax deduction against your income, including rental income, giving you a significantly higher tax return that can turn a negatively-geared property into a cash-flow positive one after the fiscal year ends.
Use a professional tax consultant to complete your tax returns when you own investment properties. A good one will be able to garner the highest returns possible on a new build.
3. Buy a dual living home
Turnkey-ready dual living properties are designed to look like a modern single dwelling from the curb, but cleverly allow two households to live side-by-side. Typically, dual living properties are designed in a 3 bedroom/2 bedroom configuration.
Tenants appreciate dual living properties because they’re brand new and have a slightly lower rental price point than single dwellings.
Generally speaking, you can boost your rental income by around 50% with a dual income home, making it one of the best and easiest ways to buy a positive cash flow property from day one.
4. Design a home your market needs
Another big advantage of building a new home as an investment property is being able to cater fully to the rental market.
With a little research, you can create an avatar profile of your target renters based on what they’re willing to pay, and design your new build to give them exactly what they want.
Renters in your area of choice may prefer 3 bedroom homes with double garages, or smaller 2 bedroom homes with a maintenance-free backyard. Fulfilling the needs of the largest tenant pool will allow you to charge top-of-the-market rent and reduce vacancy periods.
Use a property expert group like ours to determine your budget, design the right home and location, and crunch the numbers to create positive income from your investment property.
Book an obligation-free strategy session with one of our team.
5. Choose a neighbourhood with potential
If you want positive cash flow from your property, it’s not enough to just build a home targeted at renters – it has to live somewhere with growth potential.
Getting in on the ground floor of a growing neighbourhood means you’ll pay less initially to buy there, and earn greater capital gains – and rental income – as the market matures.
Look for features in the neighbourhood that your target tenants want. Schools, community, easy commute to city centres and lifestyle amenities, future planning and recreation are just some of the boxes you might need to tick.
Again, consult with professionals who have been watching the market for some time, who can advise you on growth prospects, tightening vacancy rates and up-and-coming land releases.
6. Switch your loan type
If you absolutely need to have a positively geared or cash flow positive property, you can look at an interest-only loan for a term.
When you mortgage an investment property, you can choose between a principal and interest loan (where you pay down both simultaneously), or an interest-only loan (where you only pay the interest portion).
The benefit of an interest-only loan for a season is that it makes your repayments considerably lower, giving you the ability to create positive cash flow from your property.
After a time, once your investment has generated some equity and your rental income has increased with the market, you can switch your loan back to principal and interest without sacrificing your positive cash flow.
7. Find the best loan
It might seem obvious, but it’s amazing how many investors don’t get the best deal on their loan from the beginning. Lenders are willing to negotiate to get your business, so don’t settle for the first offer, and don’t go straight to a bank for a quote.
Use an independent mortgage broker with a large pool of lenders who can source the lowest interest rate, potentially have fees waived and a few bonuses thrown in for you.
Even the tiniest decrease in your interest rate can save hundreds of dollars each year, which is more margin for positive cash flow from your property.
Colonial Pacific can help you source the best loan for your circumstances and goals.
Book your free consultation to see how we can help.
8. Make your property pet-friendly
This might seem a little bizarre at first, but renters in Australia struggle to find pet-friendly properties. Many investors assume pets destroy rental homes, which is not necessarily correct – but it does make them an in-demand property type.
Plenty of pet owners are responsible, reliable tenants. You can build clauses into your tenancy agreement to protect furnishings (like no pets on the carpet) and install internal gates to determine pet-safe zones. Any damage can be repaired using the renter’s bond or claimed on insurance.
The upside is that desperate renters may pay a premium on rent to find a home for their furry friends. Speak to local real estate agents or a professional investment property group like ours to determine a pet-friendly premium amount your tenants would be willing to pay – it may be as much as $20 to $30 a week.
9. Build up your deposit
Before you buy an investment property – even when you’re just in the initial stages of thinking it’s a good idea – start building up your deposit.
The more you can put towards your investment property in the beginning, the lower your repayments, and the better your chance of creating positive cashflow.
To increase your deposit, you can:
Next steps to a positive cash flow investment property
Generating real in-your-pocket dollars on your investment property is achievable, but as you can see, there’s a lot to think about.
Google searches can only do so much to help you research, and then it’ll be up to you to implement, evaluate, negotiate, build and settle on a property.
It’s a lot of work, and a lot can go wrong.
It’s likely you’ll need help.
You might want to think about using a team who know property inside-out to steer you in the right direction towards your goals.
It that’s you, we invite you to chat with one of our team for a free, no-obligation strategy session.
We’ll take the time to understand your goals and circumstances, and help you decide on a blueprint to deliver the results you need.
On your behalf, we search for and recommend properties that suit your goals. We can source properties from anywhere, but specialise in dwellings located in growth areas close to major CBD’s, in idyllic lifestyle locations with good vacancy rates.
If a cash flow positive property is something you’d like to look into, whether you’re a first time investor or an experienced one, or even if you’ve never bought a property before, let us help you gain the momentum you need.
Every day that passes is another dollar you could have earned in rent!
Book your free strategy session at a time that suits you. Remember, there’s no cost, and no obligation when you chat with Colonial Pacific.