Allianz Home Insurance

 

What is a cash flow positive investment property?

by Chris Lang on October 30, 2012

Cash flow positive investment property

When it comes to creating streams of income outside of the day job, investing in property is generally regarded as a safe and worthwhile option, as property usually at the very least holds its value and in most cases, increases in value over time. There are also opportunities to benefit from investment properties through rental returns, as well as capital appreciation, and depending on your personal circumstances and financial goals, strategies such as the cash flow positive one may be right for you.

A cash flow positive investment property is a type of investment whereby the money received from rent exceeds the mortgage repayments; that is, you are left over with extra cash after your mortgage obligations have been met. A cash flow positive investment strategy, also known as positive gearing, is a great way to increase one’s cash flow and expand their passive income streams, in order to help with various other factors.
Investors usually seek a cash flow positive investment strategy for several reasons, one of them being to diversify their property portfolio alongside the typical negative gearing strategies. With the passive income created by a cash flow positive investment property, it can be used to pay off your primary mortgage, help with the children’s school fees, weekly grocery shopping, or just about anything else you can think of to do with the extra cash. The main draw of cash flow investment properties are the supplementary incomes that they create, which can ease the burden of everyday living and help one to alleviate financial worries, as they pertain to short term obligations or wants.

In essence, investing in a cash flow positive investment property is immediate gratification as the financial returns are instant. While negatively geared properties are tailored to reward one later down the track, cash flow positive aims to provide extra income in the on-going short term. Effectively, owning one is a lifestyle option to increase wealth. Negatively geared properties appreciate more, but generally do not provide cash flow for years. The added advantage of investing in a negatively geared property is that the equity created say, ten years from today, can be used to buy multiple cash flow positive investment properties and thus, create multiple steams of income.

Cash flow positive investment properties generally have a high rental return, and lower capital growth over time, therefore they are great investments for those looking to add ease to their lifestyle for everyday living. While over time the properties do appreciate, they do not appreciate as highly as a negatively geared property- however, negatively geared properties generally have a lower rental return. There is no ‘better’ strategy, or better type of investment property. Instead, property expert groups such as AllianceCorp recommend a mixture of both, so that as a property investor, you can enjoy the benefits that are associated with both.

avatar

AlianceCorp

This article was provided by AllianceCorp. To find out more about cash flow positive investment properties in Australia, visit AllianceCorp’s website
or call 03 8669 0629.

You might also enjoy:

 

{ 4 comments… read them below or add one }

Dasheen October 30, 2012 at 1:41 pm

How interesting, I look forward to learning more.

Reply

Brian October 30, 2012 at 5:46 pm

One problem with negativly geared properties are they generally at the cheaper end of the property market. For example older houses in Country Towns.

One of my friends pursued the strategy of positivly geared property but found he had trouble attracting good tenants.

Brian

Reply

Chris October 31, 2012 at 11:17 am

Did you mean “One problem with POSITIVELY geared properties” (because you said “negatively”). I would imagine that positively geared properties would be at the cheaper end of property market. I agree, that if the property is cheap and nasty you’d have trouble getting decent tenants in.

Reply

Brian November 2, 2012 at 10:14 pm

oops sorry Chris yes POSITIVE is what I meant

Brian

Reply

Leave a Comment

Previous post:

Next post: