Two Ways to Structure an Investment Property

by | Jul 26, 2021

Option 1: Positive Cash Flow Property

Structuring An Investment Property | Locate Property

Most Real Estate investors ideally try and target this kind type of structure for their investment property. Especially with the interest rates being at an all-time low. A historic low in fact. The idea is to achieve more rent from the property than all of the expenses to hold and operate that investment.

The great thing about a Positive Cashflow 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, this will allow for more properties to be added into 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 it is to obtain a Real estate asset that will appreciate in value.  This Real Estate Investor structure 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 structure that you choose will depend on your personal set of circumstances in the Real Estate Market, your Real Estate Goals, Real Estate Investment Education, and Real Estate Investment Experience.

Please seek Independent property-specific advice from a trusted professional before investing in property. The Property Market isn’t always up and your personal position dictates your ability to invest now just now but to be held in the event circumstances change.

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