Is positive cash flow the same thing as a positively geared property?
A property that’s positively geared is when the rental income exceeds the expenses without considering the home’s depreciation and tax deductions. Like we mentioned before, a positive cash flow property earns more than its expenses while considering depreciation and tax deductions.
When it comes to deciding which approach is right for you, think about the tax benefits. If you want to make the most of tax time, then a positive cash flow property might be right for you. It’s always a good idea to chat to a financial advisor about which strategy works best for your investment needs.
What are the benefits of a positive cash flow property investment?
Having a positive cash flow property is a self-sustaining form of income. So there’s a strong chance you won’t be out of pocket to cover your property’s expenses – meaning more cash for you to spend or save.
Because your positive cash flow property is helping you maintain the costs of your investment home, you can meet other financial obligations and payments more easily. It also lets you plan around the success of your current investment – whether that’s buying another investment property, achieving a personal goal, or growing your savings.
How can investors maintain positive cash flow?
Maintaining your property’s positive cash flow is much simpler than you think.
- Buy a property that has positive cash flow potential: Try purchasing a property in an area with low vacancy rates, which indicates a strong appeal, and high rental yield. This means the amount of rental income you make outweighs the home’s expenses – like loan repayments and other costs. This can help maximise the income you earn.
- Save up a deposit: If you can save up larger deposit, it can help reduce the overall loan amount, which then lowers the repayments you’ll need to make.
- Renovate your investment property: By renovating your property, you can help increase its rental yield too. For example, you might give the exterior a fresh coat of paint or install a new bathroom. Whatever upgrades you make to the home, you can charge more rent to future tenants once the renovation is done.
- Monitor your property portfolio: This is a great strategy for maintaining your property’s positive cash flow. You can work out how to adjust your strategy to ensure your investment is helping you stay in the green.
How can investors look for positive cash flow investment properties?
Knowing your borrowing power can help narrow down your investment property options, as you have a ballpark figure to work with. This goes hand-in-hand with market research. Investigate which suburbs have a high rental yield and low vacancy rate and focus your efforts on those areas.
You can also buy an investment property that’s below the median price of your preferred suburb – usually about 20 to 40 per cent less if you can. Another tip is to consider properties that can generate multiple streams of income, like a house with a granny flat.
Lastly, staying on top of the interest rates cycle to ensure you’re getting the best possible rate for your loan. If you know where things are at, you can think about refinancing and securing a lower rate elsewhere.
Can you claim tax on the positive cash flow property?
You can claim tax on some of the costs from your cash flow property, which include:
- The interest on your loan
- Property management fees
- Any repairs you need to do
- Property depreciation
But if your investment property is running at a loss and is negatively geared, then you might be able to claim certain types of tax deductions to cover the loss of income.
It’s always best to chat to your personal accountant or financial advisor for tailored tax advice.