No property investor sets out with an investment objective to fail. Property investors commonly look to make a positive financial return, whether in terms of rental yields or capital gain over time. While there are multiple strategies that investors can adopt when investing in property, we look at the characteristics of positive cash flow properties and the potential they bring to the investment table.
What is a positive cash flow property?
A positive cash flow property (sometimes referred to as “positive cashflow property”) refers to a real estate investment that generates more income than the total expenses associated with owning and operating the property. In other words, the rental income received from tenants is greater than the mortgage payments, property taxes, insurance, maintenance costs, and any other expenses related to the property (such as property management fees).
It’s important to note that calculating cash flow involves considering both short-term and long-term factors. While a property may have positive cash flow in the present, it’s crucial to assess its sustainability over time, taking into account potential vacancies, repairs, interest rates and changes in expenses or local property market values.
Are cash flow positive properties better than negatively geared properties?
When looking at your investment property options, it may not be immediately apparent whether a property will produce positive cash flow or negative cash flow. This is because until you have finalised your finance over the property, understand every expense against the property and have a tenancy agreement in place, the net income result can only be estimated.
In terms of what works best for you as an investor, you may be drawn to the appeal of a positive cash flow property, however, that’s not to say that it will be the best investment strategy for you. Only a qualified financial planner (who takes into account your personal financial situation) can determine what will be in your best interest.
For example, negatively geared properties may come with more depreciation and tax deductions than a cash flow positive property. However, positive cash flow may present better financial returns in the short term, which may help you meet your personal property investing objectives, depending on what they are.
What potential does a positive cash flow property bring to investors?
There are risks and benefits to every aspect of property or financial investment. However, some of the potential benefits that a cash flow property may provide to investors include:
Nil detriment to personal income
With a negatively geared property, the shortfall in cash flow needs to be sourced from somewhere, typically the investor’s own personal income (or surplus income from other investments). With a positive cash flow property, the surplus income means that the investor doesn’t need to defer income from elsewhere to help cover the property’s expenses.
Opportunity & risk mitigation
Positive cash flow may also allow the investor to utilise the funds to either renovate, pay down their investment debt, for their own personal needs or invest elsewhere. Positive cash flow also has the potential to provide a buffer to cover unexpected expenses, periods of vacancy, or interest rate increases. This can potentially increase the property’s resilience and potentially reduce the investor’s financial exposure.
Generating positive cash flow, a positively geared property has the potential to be a profitable investment. It means the property earns more than it costs to own, resulting in a surplus contributing to the investor’s overall financial position.
Are SDA properties negatively or positively geared properties?
While it’s impossible to say whether a specific specialist disability accommodation property would be cash flow positive or not, typically, SDA properties provide high rental yield for investors. This is thanks to SDA funding under the government-backed initiative to provide suitable accommodation for Australians living with disability.
Let Apollo Investment help you find the right finance for your next ethical investment property
If your search amongst investment properties has led you to consider NDIS housing, you are likely drawn to the socially-focussed outcomes, capital growth potential and high rental yields that SDA properties may offer. Finding the right property is one thing, but finding the right finance solution to make your investment intentions a reality is another.
At Apollo Investment, we provide investment solutions for property investors looking to make a difference in the lives of Australians living with disability. Let our experienced team guide you on your SDA investment journey, but reaching out to us today!