Cash Flow is King

We are sure you have probably heard the adage – ‘Cash is King’, and for the most part, you would probably agree that it’s fairly accurate. A bit like ‘he who has the gold, makes the rules’, which is also on point. We’ll we, at the Property Investment Store believe that ‘Cash-Flow is King’ for rental property. Let’s explain why. 

It doesn’t matter if you are a local corner shop or a tech giant like Apple, at the end of the day, you pay your bills with cash. And it’s the same with an investment property because each investment property is like a small business. It has a profit and loss statement, balance sheet, and statement of cashflows. At this point, you’re probably thinking boring, my accountant handles that stuff, so I don’t have to. And if that’s the case, let’s bake it down into more practical terms.

Let’s assume you have the financial capacity and are considering choosing between three smart investment property. Let’s assume we showed you three great locations that meet our investment criteria that are the best place for investment property, to achieve an average of 5% per annum capital growth over the long term. Which Property Solution would you choose:

• Option 1 – with negative cashflow, that costs you $100 per week to hold; or
• Option 2 – with neutral cashflow, that costs you nothing to hold; or
• Option 3 – with positive cashflow that pays you $100 per week to hold.   

Assuming we have no other data to work with, we are all probably thinking the same thing: I’ll take Option 3 which puts money in my pocket each week. Why is that? Because we all know that the other two options require YOU to top-up any monthly shortfall out of your own pocket. And if interest rates move upwards over the short term, then the neutral option may become a negative option too.

Now let’s bring price into the decision-making process for the three different options: 

• Option 1 – with negative cashflow of $100 p/w, costs $470,000; or
• Option 2 – with neutral cashflow, costs $630,000; or
• Option 3 – with positive cashflow of $100 p/w, costs $850,000.

Which Australia investment property would you choose now? Remember you have the financial capacity to acquire either option.

Will you play it safe and strain your back pocket week-in-week-out waiting for capital growth to be your saviour? How long could you wait? What happens if you lose your job? What happens if interest rates go up again? 

Or

Will you make the smart decision and choose the option that pays you CASH every week while you wait for the capital growth?

Whether you are just getting started in property, looking to reduce your mortgage, or looking to maximise income for retirement, we can help craft a property Strategy that will suit your number and lifestyle goals. Reach out to our team today to get started on your property investment journey.