Are cash flow properties dead?

GUEST OBSERVER

A few short years ago, locations like Port Hedland in Western Australia or Emerald in Queensland were offering returns of up to 15%.

Well, that was then, this is now and the dive in commodities prices has been mirrored in property investment returns.

Adding to the slowdown, most lenders have dropped the LVRs on higher returning investments such as student accommodation and serviced apartments to levels that would have left many investors scratching their heads and wondering if the extra deposit required was really worth the returns.

This raises the obvious question of whether cash flow positive investments are dead or at least, needing urgent resuscitation.

Having owned several cash flow positive properties in both Queensland and WA, I know firsthand how much it can hurt when rentals start to fall.

Yet, despite this, I am still adamant that positive cash flow is the right investment strategy for most investors.

So, that means the next question is where in the current market can you find cash flow positive properties?

The answer is quite simple. You have to create them rather than hold off in the hope they find you.

Duplexes and dual key properties are the best and safest cash flow positive property an investor can acquire, particularly in today’s tough economic climate.

They can be developed in most metropolitan locations which means you don’t run the risk of fluctuating returns based on local industry plus there’s the opportunity for two rental incomes under one roof which generally shows a profit rather than a loss.

Duplexes also have the added benefit of a potential development profit through subdivision.

And this potential for development is really worth considering because instead of sitting back and waiting for capital growth you can create and drive equity, in turn, becoming a master of your own destiny.

Here’s a checklist of issues to consider:

Location due diligence is still just as important as any other property investment so narrow your search to growth areas with high rental demand for three bedroom dwellings.

Make sure the land is subdividable before you purchase. It’s too late once you’ve signed so think about enlisting the services of a town planner.

Find an experienced builder that has undertaken these types of build before and don’t over pay. Sure, it’s a bigger build but it’s all under one roof.

If you’re thinking about planning and subdivision always refer to local professionals who know the intricacies of the council with whom you will be dealing.

Finally, remember that you don’t need to sell the property to make a profit.

When you factor in things like agent’s fees and capital gains tax, you can actually access the same, if not more, equity by simply revaluing the property and increasing your mortgage.

This type of  “equity release” can then be used to move onto the next project and the duplex could still be cash flow positive, depending on the rental income.

This is a very sound strategy as the property can still create an income and gain capital growth while you continue to build your portfolio.

Paul Bieg is the founder of Big Property Investments