What is a Cashflow Positive investment property?

Investing in real estate can be a lucrative venture, but it's important to understand the different types of properties and their potential returns. One type of investment property that many investors seek out is a cashflow positive property. But what exactly does that mean?

What is a cashflow positive investment property?

A cashflow positive investment property is a property that generates more income than the expenses associated with it. In simpler terms, it's a property that puts money in your pocket each month rather than taking money out.

Rental income

The primary source of cashflow for an investment property is rental income. When you purchase a property with the intention of renting it out, the monthly rent payments from tenants can provide a steady stream of income. The amount of rental income will depend on factors such as location, property type, and market demand.

Expenses

While rental income is the main source of cashflow, it's important to consider the expenses associated with the property. These expenses can include mortgage payments, council and water rates, insurance, maintenance costs, and property management fees. Subtracting these expenses from the rental income will give you the net cashflow.

Positive cashflow

A cashflow positive property occurs when the rental income exceeds the expenses, resulting in a positive net cashflow. This positive cashflow can provide additional income for the investor, which can be used for other investments, debt reduction, or simply to improve their financial situation.

Benefits of cashflow positive properties

Investing in cashflow positive properties can offer several benefits for investors:

• Steady income: Cashflow positive properties provide a consistent stream of income, which can help investors achieve financial stability.
• Debt reduction: The extra income generated from a cashflow positive investment property can be used to pay down the mortgage on investor's Principal Place of Residence (PPOR) faster, reducing debt on PPOR loan and building equity on PPOR.
• Portfolio growth: Positive cashflow can be reinvested into additional properties, allowing investors to grow their real estate portfolio over time.
• Tax advantages: Owning a cashflow positive property can still provide tax benefits, such as depreciation if the property is less than 40 years old.

Considerations when investing in cashflow positive properties

While cashflow positive properties can be attractive investments, there are a few things to consider before diving in:

1. Market research: It's important to thoroughly research the market to ensure there is demand for rental properties in the area.
2. Property management: Managing a rental property can be time-consuming, so consider whether you have the capacity to handle it yourself or if you'll need to hire a property management company.
3. Property condition: Assess the condition of the property and factor in any potential maintenance or renovation costs that may affect the cashflow.
4. Cash reserves: Having sufficient cash reserves is crucial in case of unexpected expenses or periods of vacancy.

Conclusion

Investing in a cashflow positive property can be a smart financial move, providing a consistent income stream and potential for long-term growth. However, it's important to carefully evaluate the property, market conditions, and expenses before making a decision. With proper research and planning, a cashflow positive investment property can be a valuable addition to any investment portfolio.