Investing in a cash flow positive property can help you build a passive income, but how and where can you find such a property? DPN Director, Lloyd Thomas explains all of the considerations.
With 22 years knowledge and expertise, DPN has identified key factors towards finding positively geared or cash flow positive investment properties. Most importantly, a property investment decision needs to be based on independent research and a sound methodology, rather than emotion or personal preference.
The ideal deposit
If a deposit is large enough, any property can be cash positive. In the absence of this, one strategy to achieve a cash flow positive investment is by using the equity in your home and borrowing 100 per cent of the investment property cost. This way, you avoid paying lender’s mortgage insurance and are using less of your money and more of the bank’s to make a profit.
Minimising property expenses
To be cash flow positive, your bank’s interest charges and property expenses need to be less than the rent you’re collecting. Brand new properties give you the advantage of claiming higher depreciation expenses for the entire time the property is rented, with lower maintenance requirements and typically higher rental yields.
Ensure a higher rental yield
Conducting thorough research on the location and investing in new properties purposely built to suit prospective local tenants, ensures your investment generates a sustainable rental yield.
Location is everything
Investing in major cities, with continued and increasing demand, secures the future of your return. Independent research, like Residex, can provide a valuable indication of predicted growth. Key supporting factors include population growth, infrastructure investment and employment opportunities.
Using tax to your advantage
From a tax perspective, the areas that affect whether your investment property will be cash flow positive, are interest rates and property expenses, depreciation and your taxable income. Choosing to invest in a new property allows you to take advantage of some real tax benefits, to help you become cash flow positive.
In addition to applying the key selection criteria above, an innovative solution is to look for purpose built dual income properties, which offer two rental incomes from the one property and assist in higher rental returns.
For more comprehensive information, see DPN’s article: Investment Properties that Pay.
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