Option 1: Positive Cash Flow Property

Structuring An Investment Property | Locate Property

Suzana Wade of Locate Property is often asked about the differences between positive and negative cash flow properties.

The great thing about a positive cash flow property is that rents can cover expenses, management fees, property taxes, and insurance premiums, leaving you with extra income out of pocket. IE. Positive Cashflow

A real estate investor can have the following when they invest in this type of structure:  1) Tax Benefits 2) Long-Term Capital Gains 3) Excess Rental Income 4) Potential Appreciation When this strategy is done right, it will allow for more properties to be added to one’s portfolio in a shorter amount of time.

Option 2: Negative Cash Flow Property

This is the traditional Real Estate Structure or the one that you hear the most when agents or talk about buying Property. This is also referred to as Negative Gearing. These days, most Real Estate Investors do not have this structure when they first start out in Real Estate Investing, but rather prefer to target a positive cash flow property instead due to the low-interest rates.

A Negative Cash Flow Property is when your income does not meet your expenses. In other words, the rent doesn’t cover all the bills/costs.

Positive and Negative Gearing What are they and which one should you aim  for? — Wealth Efficiency

This structure can have additional tax benefits such as the depreciation of the Real Estate Property and is popular amongst investors that are making the most of capital gains. Sydney Properties for example are more likely to be Negative Geared vs a Brisbane Property etc.

The investors in this structure are generally real estate developers who will spend significant amounts of money to improve the real estate market value. For a negative cash flow investor, their goal is not necessarily to produce a positive cash flow property but rather to obtain a real estate asset that will appreciate in value.  This real estate investor structures their real estate investing for appreciation and gains down the line instead.

In order to do this type of Real Estate Investment correctly, thus protecting your downside risk, you need to be smart about the Real Estate Market that you are investing in.  This strategy is very Real Estate Market dependent, not all Real Estate Markets perform well in these times.

The choice between positive and negative cash flow properties will depend on your personal set of circumstances and the unique outcomes that you are looking for. Your real estate goals, real estate investment education, and real estate investment experience

Please seek independent property-specific advice from a trusted professional and get yourself a property-specific CPA appraisal before investing in property. The property market isn’t always up, and your personal position dictates your ability to invest now but to be held in the event circumstances change.