Finding Cashflow Positive Property
I'm sure you’ve heard people talk about negative gearing plenty of times. “Use the strategy,” they say. “You’ll be able to lower your taxes and do all sorts of other stuff.”
But here’s the thing. Negative gearing doesn’t work for most investors. It’s too complicated and it requires you to be able to absorb the fact that your property isn’t generating an income.
If you want your property investment to generate a positive cashflow from the start, here are our top seven tips that will give you just that:
Tip #1 – begin with education
There’s a reason why only 18% of Australian property investors make it to their second property. They don’t know enough about what they’re doing to make their strategy successful. The property they invested in doesn’t provide positive cashflow and they’re stuck.
Sometimes, I’ll meet people and they’ll say something like:
“Ian, I’ve read some of your content and seen you speak. I want to jump right in and buy a property before I invest in education.”
That’s not the right order of events. Without the proper education, you’ve got no idea what pitfalls to look out for.
Take it from someone who bought seven properties that had a combined $36,000 negative cashflow.
Not getting an education before you invest is like going to a med student and asking for surgery before they’ve become a doctor. It doesn’t work.
I always say to get an education and find a mentor before you buy your first property. You’ll avoid so many of the mistakes that others make. Plus, you’ll have a much better chance of finding a positive cashflow property.
Tip #2 – get started
I wonder how many people will read this and say “I want to get involved in property investing.”
Then, a month down the line, they’ve made zero steps towards getting their first property.
If you want to find a positive cashflow property, you’ve got to get started on something. Whether that’s educating yourself or researching a property, you need to start building some forward momentum.
Both full-time employees, Sanjeev and Illa already felt stressed out from spending all of their time working. But with a new baby on the way, that stress would magnify in just a few months.
They needed a way to escape the 9-to-5 so they could have time for themselves and their families.
They had just $20,000 to work with, after taking their debts into account.
Some would tell you that’s not enough to invest in property. But they’re the people who never get started. Sanjeev and Illa took the first step and started educating themselves as they looked for opportunities.
In April 2019, Sanjeev made the decision to leave his 9-5 job as the positive cashflow from his investment properties had created enough income for him to turn to investing full time.
Saying you’re going to do something isn’t enough. You’ve got to take action and start putting the work in. I’m here to support you but it’s up to you to put your education into practice.
You may have heard the saying that only fools rush in.
That’s so true when you’re investing in property. What may seem like a great opportunity at first glance could end up being a terrible investment. Always take your time to do the research.
Find out about the area and the demand for the type of property you’re investing in. Most importantly, run some cashflow projections to see if you have a viable opportunity in the first place.
So many investors jump at deals without figuring out all of the details first.
Don’t make that mistake.
And here’s another thing.
The first positive cashflow property you find isn’t the only one that’s out there. If your projections say you’ll just about make money, it might be a better idea to hold off and wait for something else.
You’re going to hold this investment for a long time, so make sure you don’t rush the research stage.
Tip #4 – push through the worst moments
There are going to be times during the search where you feel awful. You might have looked at a dozen different properties and your motivation starts to dip.
You just want the whole thing to be over with. So, you either give up or just buy the first property that looks like it can offer positive cashflow.
That’s another mistake that a lot of new investors make.
I believe that the time when you’re feeling your worst is also when you’ll reap the best rewards. Pushing yourself to get up and keep going helps you get clear on what you’re doing. If you can get through this feeling, you know you can achieve something amazing when you’re on top of your game. Just keep taking those forward steps.
Tip #5 – set your criteria for buying
You’ve got to know what you’re looking for if you’re searching for positive cashflow property.
Every investor has different criteria. The point is that you need to have something in place that helps you with your search. This will eliminate any property that doesn’t meet your criteria straight away. That saves you time and means any property you do find has a better chance of generating a positive cashflow.
Set your own criteria and stick to it.
Tip #6 – avoid emotion
You’re not the person who’s going to live in the property. That means you don’t have to fall in love with the place. If it fits your criteria, you don’t have to worry about whether it suits your tastes.
This works the other way around too. You might fall in love with something that doesn’t fit your criteria. And if you’re not wary, that emotion could cause you to make an offer just because you like the place. You may also find yourself struggling with negotiations if you let emotions get the better of you.
Either way, emotion can lead to you making some bad decisions. Focus on the financials rather than how the property makes you feel. If there’s no sign that it’ll generate positive cashflow, it doesn’t matter how you feel about it.
Tip #7 – don’t take the first loan offer
There are dozens of lenders who offer hundreds of loan products between them. That means there’s no reason to take the first loan that you can find. Remember that your mortgage and the related interest is the largest recurring expense you’ll face. Choosing the wrong one could lead to a great property being unable to generate positive cashflow.
Dedicate as much time to researching loans as you do to researching the property. You could also consider using a mortgage broker if you don’t have the time.