I’m new to investing property and I’m just wondering exactly what a positive cash flow property would be. Now after doing the formula in steves book that works out which properties is more likely to have pos cash flow. If property being selected that way still is negative gearing say -$10 every week and the loan repayments are included in the expences would that be negative cash flow?
The main thing I’m trying to work out is if the rent you get everyweek should be enough to cover the rates, mangement fees, expences and also the repayments and still have left over cash from the rent. Although if not as above it negativly gears $10 each week, say a couple of years down the track the loan is paid off then the property will be pos cash flow, it will obviously not matter right?
Hi Ko_starr,
Firstly, welcome to the forum!!!
Positive cashflow (geared) = income minus expenses equals money left over (surplus)
Negative cashflow (geared) = income minus expenses (insufficient therefore) + money needs to be added to cover expenses
Equally, a neutrally geared property is one where the income and expenses balance each other out, and there is no profit or loss made.
A negative geared property can become positively geared, and vice-versa, over time.
Hope this simplifies it enough for you.
Cheers,
Jo
A simple way to look at it is – If at the end of the financial year the individual property as added to the lining of your pocikets by more then $1 then its +ve but if you have had to fork out more then $1, on top of the rental income, to help pay for the place its -ve
Pete
…Beware of the dreamtakers…
Hi Ko_star,
Welcome. Remember the formula is only a guide. You need to get all the numbers before you can really see to what extent it is positive.Positive cashflow means that you have money left over after everything is paid.
MarkyMark
Hi Ko_starr,
I’m trying to think all this through too… I imagine the goal is to have the rent from the property cover all expenses (loan repayments + all outgoings + maintenance allowance?) and still leave a surplus. This would be ideal. If your property has a $10 shortfall it is very close and will indeed have a positive cashflow in time. I suppose you would also consider other things such as how well the property will grow in value or redevelopment opportunities.
Also, some separate +ve properties into two groups… the terms can be confusing but concepts are:
1. rent – expenses = surplus (Positive Cashlow?)
2. rent – expenses + depreciation tax refund = surplus (Positive Gear?)The first is the stronger investment.
Hopefully I have this right (apologies if I don’t). Anyway, some things to consider.
Take care & regards,
Doug
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