People often refer to the concept of ‘gearing’ and you will hear the terms ‘negative gearing’ or ‘positive gearing’. Essentially there will be a series of costs associated with buying (and ‘running’) an Investment Property and once it is finished there will be rental income coming in and tax deductions available. Where the flow of income exceeds the costs, you are achieving positive cashflow. This can be a ‘favourable’ way of investing because you are typically not needing to financially support the investment.
1. Clear mathematical analysis and the ‘right rent’
It is very important to have an effective spreadsheet or reputable report that forecasts the projected costs and allows you to accurately know what the Investment property will require financially. One example is a PIA Report. Having a clear understanding of the net cash flow position allows you to align the purchase with your overall goal and your current lifestyle. Positive cashflow from the Investment could be used through your offset account to reduce the time it takes to pay off your Residential mortgage.
2. Choosing the area and Estate well
As each area will give you a different rental yield, choosing the right area is a critical part of getting a cash flow positive investment. There are a series of criteria that you should apply to an area so that you achieve favorable math. A reliable partner can guide you through their area criteria which should include:
Current and traditional vacancy rates. Typically, the vacancy rates should stay well below 2%.
Forecast capital growth of similar properties (rather than average properties)
Current and forecast rental yield
Employment and population growth statistics
The Master Plan Estate and block need careful selection as well
Essentially you should AVOID an ‘attractive to many investors project’ because you’ll be competing for renters – attractive to home owners estates work well IF you can get a suitable block
At Haverton Homes we use a 24 point selection criteria to help our clients select the area and the location of the land to build to ensure our clients will achieve the highest level of rental return.
3. Organising a tax variation statement
Typically, property investors might wait until the end of the financial year to claim a big refund on their tax. However, you can improve your cashflow position by claiming this refund as you go through the year. You can put this extra money towards your mortgage and reduce the interest on your home loan. Your accountant can assist you with this with a registering this process.
4. Keeping the running cost minimal
There are some unexpected costs when you own an investment property. Things needs to be replaced or upgraded as required. Selecting a low maintenance type of property is key to keeping the cash flow positive, this is why brand new investment property are often being favoured as it has a lot less upkeep requirements, plus brand new property comes with warranty and structural guarantee that will give you protection over these costs. By claiming depreciation of the newer investment and only paying ‘Transfer duty’ (formerly called Stamp Duty) on the land, you may enter the project with better math: have an educated partner explain the difference between ‘New’ and ‘2nd Hand’ likely costs and math.
5. Dual Living Houses as a Strategic positive Cashflow Model
Dual Living houses (please read our white paper) literally create two rental incomes under the one roof. This maximises the potential on your block of land and increases the rental yield significantly A dual living investment can generate up to 7% rental yield compare to maybe 5% on the same block for a single dwelling. Having 2 separate tenants also lowers the risk of having no income at any point in time as it is unlikely to have both tenants moving in and out at the same time. The depreciation component in a dual living investment is also higher due to it having two sets of kitchens and more appliances.
Disclaimer:The advice provided on this website is general advice only. Please seek advice from qualified professionals.
Dreaming of financial independence through property investment but not sure where to start?
At Haverton Homes, we believe that property investment should be an exciting and rewarding experience open to everyone. Our unique investment journey is designed to simplify the process and help you achieve your goals. As part of our 3-step process, we’ll tell you where you are, what you can do, and what your options are.
If this sounds good, take your first step to build wealth by booking a discovery call with us today to find out what your options are.
