Maintaining cash flow while growing portfolio

[dave901]

Hi everyone,

Beginner here - with 0 IP's thus far . My question is around cash flow, as I know it is one of the most important things to consider when building an investment portfolio.

When growing one's portfolio, assuming most or some of your IP's are negatively geared to some extent, how do you maintain a strong cash flow?

Is it that successful investors always find some CF+ properties to add to their portfolio? Are these difficult to find, and predetermine that they are in fact CF+ before purchasing?

If I was to continue to purchase IP's with strong growth potential, but mostly negatively geared to some extent, does this mean that I just have to do it tough (more so than if I had no IP's) for some years while my equity grows?

In that case, I imagine each IP purchase would put additional pressure on my cash flow? Even with the tax breaks, I would still be paying out 60c to the dollar in debt, which is something that worries me. I would be very concerned about having less disposable income and the potential to default on loan repayments.

Would love to know seasoned investor's strategy for keeping a strong cash-flow while continuing to invest their equity.

Thanks in advance
Dave

 

[The Dark Knight]

You need a mixture of both to build a portfolio quickly preferably both in the same property(think regional and definetly not Sydney atm). Equity will help you build a portfolio fast and cashflow will help service it so you can still enjoy life basically. I've been lucky all my properties have been cashflow positive from day one and gone up with equity relatively quickly=) you just need to find your niche style of investing buy and hold reno, timing the market perfectly etc. ways to boost cashflow
1. Allow pets(if not strata) people will pay more to keep their beloved animals
2. Self manage (Only if you have the time though) this is more of a risk though
3. Spruce the place up (simple paint job and small maitence problems can help
Also please tell me your not just investing in property for negative gearing purposes are you?

 

[Big Will]

CF will help you service the property but the real money is in CG.

For example - property $500,000

Getting an extra 5% rental yield would have rent at ~$480 pw or ~$25,000 of which you need to pay tax, lets assume 1/3 tax leaving $17,500 a year and if the CG are 5% then you $25,000 in equity (not taxed unless you sell) = total $42,500

Changing the rate to reflect 7% RY and 3% GC would mean after tax $24,500 in rent and $15,000 = total $39,500

Having it 3% RY and 7% CG would equal after tax - $10,500 in rent and $35,000 in GC or total $45,500.

However for this you need to pay an additional $14,000 per year to hold onto the property compared to 7%RY/3%CG but you will have an extra $6,000 at the end of the year.

In summary CF will help you service the loans you have but you will hit a borrowing capacity, looking for stronger capital gains is where you will make the real money is required to use as deposits for future properties but is harder to service them.

Also note if you have 10 CF+ properties compared to 2 CF- you are paying 5x more in management fees, council rates, insurance etc etc (might not be $$$ 5x, but will have 5x more paperwork)

You really need a balance as you will also hit a borrowing limit when you are unable to service more loans.

 

[BayView]

Depends on your income;

1. High Income earner - only buy Blue Chip postcode property and plough shiddloads of nett income into the neg geared acquisition...the CG will smash it for you in no time. It's a doddle.

2. Low Income earner - only buy cheapies out in the boondocks with massive rent yield, pay down debt as fast as you can and wait. Then expend huge quantities of blood sweat and tears doing a reno/s to add value and put up the rent, then reval and repeat for next acquisition. It's not a doddle.

Make sure all of the above have maximised tax deductions, plough/reinvest ensuing tax return back into property loans/offset account to decrease more debt and go again.

 

[Brady]

Use Lenders Mortgage Insurance (LMI)