Is positive cashflow always good?

D

DexV2

Hi everyone, sorry I'm rather new to the finance side of investments and do not have a deep enough comprehension to see how having a balanced or non-balanced portfolio will play out.

As the topics states, it is always good? Assuming I don't mind paying extra tax (saying that I would definitely find ways to reduce tax). What are peoples reasoning and thoughts?
 
Depends on your long term goals.

Regionals usually have better cashflow but the capital gains aren't usually there. Cashflow is better for ongoing serviceability but if you can't get capital growth, you'll never be able to refinance/sell to get a lump sum for the next purchase.

Good to have a mix of CF and CG properties. There are many ways to bring in cashflow.

Do a search for cashflow and you'll find heaps of posts
 
Depends what the comparative return (and risk/volatility) profile is.

In simple ways, compare how much the same amount of money you put into a property would compare to other investments.

eg
What would the same amount of cash in a interest bearing account return?
What would the same amount of cash in a commercial property trust return?
What would the same amount of cash in shares of a large company trust return?

Other considerations are things such as how interest rates and inflation may affect future returns, and volatility of the value of the underlying asset (how "safe" is your money?)

The Y-man
 
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IMO cash flow positive is often a little surplus cash now, trading off against a potentially very big profit later. This isn't necessarily the case - but it appears to have often been for those buying properties in regional areas.

I've done OK on properties giving me both, getting properties with multiples. One was a block with two cottages, plus a smaller cottage which was sometimes let out, and a block of 9 1br units. Both were CF+; they somewhat offset the CF- property. Both properties gave me excellent growth.

I was somewhat lucky with the block of flats. I believe that the hype about cf+ pushed up the prices a lot more than would have otherwise happened.
 
Well I'm sure you can easily find someone to tell you NO because you will pay tax on those earnings......but you probably won't find that person on these forums as everyone is actually educated.

Cashflow is never a bad thing but as others have said there is almost always less growth in CF+ properties. A good strategy people use is a few CF+ properties to balance out the negative gearing of a growth property.
 
Deltaberry said:
Strange question.

Is it better to have an income or an expense.
Click to expand...

I think income is the answer ..........unless they are properties in a one horse town with a pub around the corner and drop kicks for tenants. Whatever happened to Steve McK... oh that's right he sold them all
 
There may be a few situations where a deal is cash flow positive but you don't go for it because it doesn't suit your strategy or your risk profile.

Some examples that for to mind that are in the NO or 'tread carefully' list
- serviced studios under 50sqm, ie uni lodge student accomodation or quest apartments
- dual living set ups that aren't legally allowed and are one Fire away from you being bankrupt
- highly volatile regional or mining towns
- boarding houses/rent by the room set ups
- holiday accommodation
- holiday accommodation in a foreign country
 
I would much rather the problem of having to pay tax or making a loss only due to depreciation allowances. Losing money hand over fist is not usually a strategy to get ahead but each to their own.
 
Scott No Mates said:
I would much rather the problem of having to pay tax or making a loss only due to depreciation allowances. Losing money hand over fist is not usually a strategy to get ahead but each to their own.
Click to expand...

Its not all bad and I believe it all comes down to timing, not time in the market.

I find this works well when its a rising/booming market, such as Syd at the moment. So you buy desirable, -ve in a particular area that is hot, hot, hot then you watch the growth/gains.

The down side to this is holding costs, so perhaps if investors were in a position to do this I would look at buying as many as possible during the boom cycle and then sell down, ie keep 1, sell 1, take the profit and reduce the debt with the ideal scenario of turning a negatively geared property into a positively geared property in well located area.

This has worked for me very well, but I think it is easy to get caught up with this one - thinking the market will continue to rise so investors don't sell prior to peak and end up with a highly LVR portfolio killing their lifestyle.
 
I thought I had bought some cashflow positive at 7% yield but then I found after doing my tax variation I still won't have to pay tax due to non cash deductions (depreciation and capitalised mortgage insurance).

If cashflow is a consideration at all, you can either afford a small number of negative properties that *may* get better capital growth or a whole lot of CF+ properties.

I agree that (in general) growth properties don't have the best yield. But also believe cashflow properties can grow too.

If cashflow properties grow slower than growth properties it is offset by an important fact - you can afford to hold more of them so you need less % growth for the same return.

The ultimate result though is to have you cake and eat it too, buy both. The cashflow from the CF+ properties pays for the shortfall of your negative properties.
 
Is positive cashflow always good?

This is the wrong question because it is always good to make a profit. You might want to clarify your question.
 
danwatto said:
I agree that (in general) growth properties don't have the best yield. But also believe cashflow properties can grow too.
Click to expand...

As a very rough and general rule I use is that a property should yield 10% per year broken up by rental and GC.

For example:

If you are getting 7% rental yield you are getting 3% GC (Regional)

If you gain 7% in GC you should be getting about 3% rental yield (Capital).

If you are getting 4% rental yield you would be wanting to have the property grow at 6% pa on avg.
 
Good point. 10% is not bad if you're fully leveraged it works out much higher than that of your investment. 15% is even better when it comes :)

I don't invest in Regional at all, CF+ in capital cities is possible then there will be some long term CG too.
 
Big Will said:
As a very rough and general rule I use is that a property should yield 10% per year broken up by rental and GC.

For example:

If you are getting 7% rental yield you are getting 3% GC (Regional)

If you gain 7% in GC you should be getting about 3% rental yield (Capital).

If you are getting 4% rental yield you would be wanting to have the property grow at 6% pa on avg.
Click to expand...

Big Will I didn't know that. Thanks for that:)
 
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