Investing In Real Estate For ‘Cash Flow’ Can Be A Gold Mine BUT Don’t Get Caught Out

Common sense says that the less cash you need to fund your investment the better off you are.  As a rule of thumb, property in a city location – particularly inner suburbs – offers considerably lower yields than property in country and regional areas. There’s usually a trade-off between yield and capital return: city investment prices have tended to outstrip non-urban prices in terms of capital appreciation; therefore an inner-city apartment might have a low yield (due to the high purchase price) but demonstrate strong capital growth (historically), whilst country properties might return a high rental yield but demonstrate lower capital growth.

The truth is that positive cash flow property is a bit like the Tasmanian tiger: they exist but finding them is another question. You can find them but you’ll generally only find them in suburbs or towns which present the investor with changing questions: “Do I really want to invest here?”  We are not taking an overly negative view of such opportunities but do suggest investment on cash flow grounds need consideration of certain criteria:

  1. A regional or rural town must have a population base of at least 2,000 dwellings
  2. Real estate should indicate a future growth rate of better than five per cent, and
  3. A property should show a gross rental yield of better than five per cent.

Tax matters

A high marginal rate tax payer derives significant benefit from receiving marginal tax cuts while (depending on the timing of any  sale), paying tax on only 50 per cent of the capital profits generated.

A low growth/high yield strategy is likely to suit those on lower incomes as the extra rent may allow them to fund an additional property. The lower income earner has fewer dollars available for funding their investments. Indeed some lower income earners who aspire to be property investors simply cannot afford to fund a negative cash flow.

Positive cash flow investing means that you have more money coming in from a rental property than is going out. It is the cash left over after allowing for cash costs of mortgage, insurance, interest, maintenance expenses, and supplemented by the non cash tax deductions (deprecation etc). If the operating expenses exceed annual income, the tax break becomes tax back in your pocket. When the after tax effects are added in to the investment equation and a positive result is achieved then you have positive cash flow from a property investment:

Positive cash flow investing remains vastly misunderstood by many investors.

Whether an investor finds a property that generates a positive cash flow depends on many things: rental income, the interest rate, allowable deductions, and your own marginal tax rate. As a simple rule of thumb threshold gross rental yield of around 8 per cent is needed to achieve positive cash flow, however (as mentioned above), this depends on the numbers involved with each specific property.

This should not be taken as a magic number, rather as just one of a number of selection criteria. The other issue is that of real long-term capital growth. This may mean eschewing fashionable urban areas in favour of drab, industrial suburbs or, as discussed earlier, regional or country towns.

A word of warning: if you are focusing on positive cash flow investments and considering investing in regional or country areas (for example), you MUST develop an intimate understand and knowledge of the issues involved and how best to proceed otherwise it could cost you BIG TIME.

Yield investors need to have their calculator ready to ‘do the numbers’. This involves making an estimate of the potential income (remembering to build in a vacancy factor of say, 2-4 weeks a year and the costs associated with advertising the vacancy), then adding up all the costs, including potential repairs. The remaining figure will be the amount of cash flow. Tax deductions in relation to depreciation on buildings, fixtures and certain contents will boost yields further as these are non-cash, tax deductible expenses in the year they are applied.

Risks

A regional or rural investor attracted by high rental yields must be concerned about the local economy. Investors feeling warm and fuzzy about high regional yields need look closely at the local economy.

Investors in regional towns are faced with higher risk than their city counterparts. In some towns you have to wonder whether there will be any population growth at all. If there isn’t going to be any real economic growth in a town then investors need to be compensated with a much higher rental yield.  Intending investors need to conduct a risk review that considers local economy risk as well as the more general risk of interest rate rises.

Leading into 2010 (and beyond), never has it been more important that investors understand what they are doing.  This market is not the time to be taking unneccessary risks.

Want to learn more about Real Estate Buyers Agents and how to develop amazing property strategies?

Claim Garry’s popular Free Report: ‘The 7 Most Costly Mistakes That Property Investors Make And How To Avoid Them’ identifying strategies you can implement immediately guaranteed to save you thousands, available at:

http://www.ifyl.com.au

Technorati Tags:

Tags:

112 Responses to “Investing In Real Estate For ‘Cash Flow’ Can Be A Gold Mine BUT Don’t Get Caught Out”

  1. daniel koch Says:

    i just thought i’d post and let you know I really like your blogs layout. Me

  2. Alessandra Sedler Says:

    Unique article. Gave me a bit to think about…

  3. free mortgage calculators Says:

    I might keep this handy for clients as well as for myself. Have a great Easter!

  4. Free tattoo designs Says:

    Good work, keep us posting, you are good writer.

  5. Atlase Personala Says:

    Very shorts, simple and easy to understand, bet some more comments from your side would be great

  6. unlock iPhone Says:

    I want to subscribe to your blog, do you have newsletter ?

  7. make money online Says:

    Thanks for writing this post. Now everything is clear for me.

  8. Hotel Guide Says:

    It is nice to definitely locate a site where the blogger is level-headed. Thanks for creating your site.

  9. Tereza Synková Says:

    found your site on del.icio.us today and really liked it.. i bookmarked it and will be back to check it out some more later ..

  10. no deposit bingo Says:

    I came across your blog, i think your blog is interesting, keep us posting.

  11. bingo uk Says:

    Good work, keep us posting, you are good writer.

  12. find cash buyers now Says:

    Fantastic website we will bookmark it and come back later.

  13. solve quick tasks earn $$ Says:

    Just have bookmarked your blog, and waiting for the next interesting post

  14. gry planszowe Says:

    Thanks for writing this post. Now everything is clear for me.

  15. busy do Niemiec ze Slupska Says:

    I like your site, is very good, but have you tried drupal cms, it’s even better

  16. Long Leandro Says:

    I’m so happy to have found your source of this specific topic which match my blog and forum, can I use some of it there if I go and link to your blog?

  17. Jodi Keefe Says:

    I did like the article very much, was really educational know what’s even better was that merely the necessary element was elaborated,to the point concise answers often can help and keeps viewers running around digging for that knowledge should never need a read again.

  18. randki ogloszenia Says:

    Do you know where to find paid templates for my blog, i got blog on the same cms like yours.

  19. medieval dresses Says:

    Wonderful insight

  20. Elvia Sandau Says:

    amazing stuff thanx

  21. zaklady bukmacherskie Says:

    It’s always pleasure to read your articles, will back here soon

  22. Free tattoo designs Says:

    I came across your article, i think your blog is cool, keep us posting.

  23. Jacinta Kruel Says:

    Thanks for finding the time to go over this, Personally I think strongly over it and love learning more on this topic. If at all, while you gain expertise, can you mind updating your blog with more information? It is rather helpful to me.

  24. Rich Gamble Says:

    Never heard anything about that before, but thanks for opening up my eyes.

  25. north bellingham homes Says:

    Good weblog post.

  26. 甲骨文 Says:

    Hey, nice post, really well written. You should write more about this.

  27. free tattoo ideas Says:

    I like your blog design. What template did you use ?

  28. marketiva Says:

    well, Nice post…Thank you for sharing some good things!!

  29. marketiva Says:

    cool, Great posts! I really like it. ;-)

  30. Larhonda Tibolla Says:

    hello it is my first reply on this website and firstly I would like to thank for the useful information, which I found in this and all previous topics , it really helped me a lot. I will definitely iclude this website on my rss reader ;) Also, I would like to ask – don’t you mind if I will quate some information from your website because I am writing articles for the Hub pages, Ezine and other articles directories (this is my part time job)? It would really help me with some of mine articles. Of course, I will mention your website name or URL (not all articles directories allows URL’s , so I can’t 100% promise that you will get a direct link to your website).

  31. thatgirl1974t Says:

    This article had a few good thoughts, but I’m going to email it to my boss and see what they think. I’m always getting stuff in my email from them, so I might as well share some cool things I find. Thanks,

    Mary Fisher
    Billabong shirts

  32. xrumer 5.0 warez Says:

    You post great posts. Bookmarked !

  33. Emanuel Lavear Says:

    Brilliant post, nicely done. And thanks for mentioning all that info – you have introduced to me to three new blogs and I love them all! Cheers :)

  34. Building And Contents Insurance Says:

    Wonderful to read!

  35. pdf download Says:

    Hey – nice blog, just looking around some websites, seems a really nice platform you are using. I’m currently using Wordpress for a few of my sites but looking to change one of them over to a platform similar to yours as a trial run.

  36. free pdf ebook Says:

    I admire the valuable information you offer in your articles. I will bookmark your blog and have my children check up here often. I am quite sure they will learn lots of new stuff here than anybody else!

  37. Rhonda Pengra Says:

    Your site is a super power heroe in Internet. I like this.

  38. Moses Mcgrady Says:

    Appreciate your taking a few minutes go over this, I’m strongly about this and love learning more on this topic. If possible, as you gain expertise, on earth do you mind updating your blog with an increase of information? It is extremely helpful for me.

  39. get paid online surveys Says:

    It’s always good to find a new blog this fantastic! I’ll be back for certain.

  40. Armanda Cathcart Says:

    Hi,good article,thanks for your share! and I want to know if i can this text in my website if I put a link back to yours? Waiting for your comment!

  41. Louie Says:

    Do you feel the housing crisis is over and we have entered a different realty market? I believe the economy needs to fully recover prior to we have sufficient folks confident enought to purchase new homes. In this market its hard to make a long term investment and burden oneself with far more debt with as a lot uncertainty is in the air.

  42. cash structured settlement Says:

    i found this in a google search. i really like your blog. hard to find something both informative and easy to read.

  43. Callie Hua Says:

    I have to state, you chose your words well. The ideas you wrote on your encounters are well placed. This is an incredible blog!

  44. increase alexa ranking Says:

    My friend suggested I come take a look at your site and I have to say I am quite impressed. I look forward to reading more from you

  45. Monroe Chatcho Says:

    this is very good information

  46. make money with facebook fans Says:

    Pretty insightful post. Never thought that it was this simple after all. I had spent a good deal of my time looking for someone to explain this subject clearly and you’re the only one that ever did that. Kudos to you! Keep it up

  47. Errinaya Thiltran Says:

    I think you made some good points in Features also. Keep working ,great job!

  48. Kilbas Penduhl Says:

    Wow! Thank you! I always wanted to write in my site something like that. Can I take part of your post to my blog?

  49. Enaldie Dark Says:

    I think you made some good points in Features also. Keep working ,great job!

  50. Matthew C. Kriner Says:

    Your site is great! You have very useful stuff here, I`m waiting for oder real estate articles :)

  51. Lorita Larmett Says:

    Because this really is my very first visit to your blog, I want to say howdy! Wonderful blog anyway.

  52. Instant Article Factory Says:

    We didn’t believe there was virtually any sites with material this high-quality. There sure is a lot of garbage out there on the web. I’ll most certainly be back to view upcoming blogposts…Appreciate it

  53. Carl Lanpher Says:

    Hi, Good content throughout the site. This page is probably where I got the most useful information for my research. Thanks for posting, maybe we can see more on this. I also like this layout can you tell me where to get it?

  54. debt myths Says:

    Keep posting stuff like this i really like it

  55. Borrego Springs Earthquake 2010 Says:

    Thanks for taking the time to discuss this, I feel strongly about it and love learning more on this topic. If possible, as you gain expertise, would you mind updating your blog with more information? It is extremely helpful for me.

  56. Colbie Caillat About Says:

    Excellent post I must say.. Simple but yet interesting and engaging.. Keep up the awesome work!

  57. justin bieber converts to scientology Says:

    Thanks for posting this info. I just want to let you know that I just check out your site and I find it very interesting and informative. I can’t wait to read lots of your posts. . . .

  58. lindsay lohan biography Says:

    Took me time to read all the comments, but I really enjoyed the article. It proved to be Very helpful to me and I am sure to all the commenters here! It’s always nice when you can not only be informed, but also entertained!

  59. Revenge Of The Bridesmaids ABC Says:

    This is my first time i visit here. I found so many entertaining stuff in your blog, especially its discussion. From the tons of comments on your articles, I guess I am not the only one having all the leisure here! Keep up the excellent work.

  60. Revenge Of The Bridesmaids ABC Says:

    Pretty good post. I just stumbled upon your blog and wanted to say that I have really enjoyed reading your blog posts. Any way I’ll be subscribing to your feed and I hope you post again soon. . . .

  61. celebrity gossip Says:

    I love the blog. Great post. It is very true, people must learn how to learn before they can learn. lol i know it sounds funny but its very true. . .

  62. movie clip Says:

    Advantageously, the post is actually the sweetest topic on this registry related issue. I fit in with your conclusions and will thirstily look forward to your future updates. Just saying thanks will not just be enough, for the extraordinary clarity in your writing. I will immediately grab your rss feed to stay informed of any updates.

  63. movie clip Says:

    You really make it seem so easy with your presentation but I find this topic to be really something which I think I would never understand. It seems too complicated and very broad for me. I am looking forward for your next post.

  64. celebrity gossip Says:

    I really love going back to your site to read your story and see more pictures that are really taken with great care. . . . . .

  65. celebrity gossip Says:

    Cool post! How much stuff did you have to look up in order to write this one? I can tell you put some work in.

  66. Airplanes B.o.B Video Says:

    You really make it seem so easy with your presentation but I find this topic to be really something which I think I would never understand. It seems too complicated and very broad for me. I am looking forward for your next post.

  67. Airplanes B.o.B Video Says:

    Finding websites with as much information as this one is always a pleasure I wll be sure to come back and visit again real soon, keep up the good work.

  68. Ivanka Trump Kushner Says:

    What a good blog you have here. Please update it more often. This topics is my interest. Thank you. . .

  69. Justin Bieber Arrested Video Says:

    I do agree with all the ideas you have presented in your post. They are very convincing and will definitely work. Thanks for the post.

  70. Salt Premiere Says:

    Should there be another persuasive post you can share next time, I’ll be surely waiting for it.

  71. tempe town lake dam break Says:

    I wanted to thank you for this great read!! I definitely enjoying every little bit of it.I have you bookmarked to check out new stuff you post.

  72. http://www.zimbio.com/Celebrity+News+and+Gossip/articles/s2rOlKxXxQw/Kristina+Hagan+Reported+Suing+David+Boreanaz?add=True Says:

    I must say, I thought this was a pretty interesting read when it comes to this topic. Liked the material. . . . .

  73. lindsay lohan biography Says:

    Pretty good post. I just stumbled upon your blog and wanted to say that I have really enjoyed reading your blog posts. Any way I’ll be subscribing to your feed and I hope you post again soon. . . .

  74. Watch Inception For Free Says:

    I can see that you are an expert at your field! I am launching a website soon, and your information will be very useful for me.. Thanks for all your help and wishing you all the success in your business.

  75. Billionaire Video Download Says:

    Been looking for this article for long time ago and finally found here. thanks for sharing this post. appreciate!

  76. Hong Kong Holidays – Hong Kong Hotels Cheap Says:

    Thanks for the sharing really usefull. I would like to bookmark this site.

  77. bowling pro shops Says:

    Hey Boss – its a nice blog, just looking around some blogs, seems a pretty nice platform you are using. I’m currently using Wordpress for a few of my sites but looking to change one of them over to a platform similar to yours as a trial run. Anything in particular you would recommend me about it?

  78. Jimmy Carlson Says:

    You have an awesome blog! Keep up the good work. I found you on Bing.

  79. car donation cancer Says:

    Thanks for posting this info. I just want to let you know that I just check out your site and I find it very interesting and informative. I can’t wait to read lots of your posts. . . .

  80. folfox chemotherapy Says:

    Great Blog! I have a similar site, and get a lot of spam. Do you face such problems? Can you please recommend some steps I take to combat spam. Thanks.

  81. folfox chemotherapy Says:

    Have found your web page. My pal mentioned it to me before, yet never got around to checking it out until now. I must express, I’m floored. I really enjoyed reading through your posts and will absolutely be back to get more.

  82. Dominic Brown Stats Says:

    I definitely enjoying every little bit of it. It is a great website and nice share. I want to thank you. Good job! You guys do a great blog, and have some great contents. Keep up the good work.

  83. Jack Roush Plane Crash Says:

    I am just making a blog related to this. If you allow, I would like to use some of your content. And with full refernce of course. Thanks in advance.

  84. MLS All Star Game 2010 Tickets Says:

    Cool post! How much stuff did you have to look up in order to write this one? I can tell you put some work in.

  85. Carrie Keagan Pics Says:

    What a good blog you have here. Please update it more often. This topics is my interest. Thank you. . .

  86. Best Web Hosting Says:

    Your blog looks nice, however it would be better if you are able to use lighter colors too as a professional design. This will ensure that a lot additional readers come to check it out.Informative post by the way!

  87. Eloise At The Plaza Says:

    I really like your site and i really appreciate the excellent quality content you are posting here for free for your online readers. Can you tell us which blog platform you are using?

  88. tylers coffee Says:

    Hello, my group is just establishing our first website, searching and working out what is needed. This blog stuck out right away. I’m fired up about this, and adore the design of your site. Are you able to let me know what “theme” it is?

  89. Legalsounds Says:

    Thanks for taking the time to discuss this, I feel strongly about it and love learning more on this topic. If possible, as you gain expertise, would you mind updating your blog with more information? It is extremely helpful for me.

  90. Young Jeezy Says:

    I agree with some of the other comments about this articles

  91. Emergency Vehicle Lights Says:

    I notice really quite a few blogs which look interesting and worth a read. There probably is absolutely nothing worse than sifting through countless blah blah blogs just to locate a couple which keep your interest. Thanks. Great job!

  92. Honeywell HEPA air purifier Says:

    Took me time to read all the comments, but I really enjoyed the article. It proved to be Very helpful to me and I am sure to all the commenters here! It’s always nice when you can not only be informed, but also entertained!

  93. Karl Mcdeavitt Says:

    This is a good,common sense Write-up.Incredibly Aidful to one who is just Obtaining the resouces about this part.It will certainly Aid educate me.

  94. I Like It Enrique Iglesias Video Says:

    Hi I found your site by mistake when i was searching yahoo for this acne issue, I must say your site is really helpful I also love the design, its amazing!. I don’t have the time at the moment to fully read your site but I have bookmarked it and also add your RSS feeds. I will be back in a day or two. thanks for a great site.

  95. Monty Alby Says:

    Very good page! I like your blog, is it okay to try it for feed purposes?

  96. acid free coffee Says:

    I am just making a blog related to this. If you allow, I would like to use some of your content. And with full refernce of course. Thanks in advance.

  97. i like it Says:

    very interesting post – please do it again

  98. Loren Csensich Says:

    Why are there no more such blogs? Your content articles are excellent and arrive in themes, which can not be discovered anyplace. Please keep on writing this sort of great material, it really is genuinely advantageous. The world wide web is total of amazing waste, as 1 is satisfied when you discover anything else. Why are not there additional? Do not leave me hanging!

  99. admin Says:

    Very happy for you to use content – with reference of course!

  100. admin Says:

    Thanks Monty…thats fine with me!

  101. admin Says:

    Thanks Enrique

  102. admin Says:

    Thanks for the comment

  103. admin Says:

    It’s a standard Wordpress theme. Thanks for your comment!

  104. admin Says:

    The platform is Wordpress. Thanks for your comment.

  105. admin Says:

    That’s fine Jack.

  106. admin Says:

    Thank you

  107. admin Says:

    Thank you Carrie

  108. admin Says:

    I don’t seem to get a lot of spam. Thanks for your comment

  109. admin Says:

    Thanks Jimmy

  110. admin Says:

    Not really. Wordpress seems to work for me! Thanks for your comment

  111. admin Says:

    Thanks for your comment

  112. admin Says:

    Thanks for reading

Leave a Reply