Positive cashflow investments put money back in your pocket each week, making them highly sought after. The only problem for investors is that they often don’t know where to find these high-returning properties in the first place.
This is because savvy investors may be on the lookout for a positive cashflow deal, but they’re not actually in the mindset of creating cashflow opportunities for themselves.
The purpose of a cashflow investment is to balance your portfolio and to allow you to keep investing, or perhaps even to retire. These deals are not usually found via a casual browse of realestate.com.au… you may have to dig a little deeper and be prepared to get your hands dirty, but the rewards can be significant when you find the right deal.
So without further ado, here are my top 6 suggestions for creating a powerful positive cashflow deal:
1. Student accommodation
Select a town with a university that has reliable growth and strong student housing supply vs. demand. Buy a family home within a short distance to the university. Add locks to the bedroom doors, furnish with basic furniture, arrange Wi-Fi, employ a weekly cleaner and add a vending machine. Then rent each room out and let the profits roll in! In 2010, my client used this strategy to purchase a 4-bedroom home. He created 2 extra bedrooms (with council approval). Each bedroom is now easily tenanted at $160 per week, which generates positive cashflow of over $15,000 annually!
2. Granny flats
Granny flats can be internal structures built within the home, or detached units of up to 60m2 in size, so you have plenty of options. The key to success is selecting an area with a supply/demand issue, and then ensuring that the local council is supportive of granny flat developments. For a fee, you can even use a specialist company to manage the granny flat construction process on your behalf, from approval and design to build and installation.
Renovating is no new investment strategy, but in a flat market, a quality renovation can turn a so-so investment into a supercharged money-earner. Aim to spend no more than 10% of the purchase price on the renovation, and be sure to carefully crunch the numbers, to ensure costs are manageable and will achieve your desired rental outcome.
4. Block of units
Look for small blocks of units that have yet to be strata titled, as these properties generally need a little work – for instance, you may need to install individual carports as a condition of strata titling. This type of condition can scare other buyers off, allowing you to secure a unit complex for up to 30-40% less than their value if sold separately. This type of project is ideal for joint ventures.
There are many ways you can develop land, such as build residence/s on vacant land or next to an existing property, or perhaps knocking down a home to construct a block of units. Each of these strategies comes with different risks and rewards but at the end of the day, there are plenty of profits to be had – provided you seek the right advice and buy the right type of investment, in the right location.
6. Mining towns
For those who have the right risk profile to take on a mining town investment, they offer excellent rates of return. It is not for everyone and it is imperative that you have a clear exit strategy in place. My golden rule is to stick with towns that boast a growing population and diverse employment industries outside of mining.
There are other strategies investors may use to generate positive cashflow returns – I’m thinking of serviced apartments, holiday units, retirement villages, and NRAS properties just to name a few – but in my view, these are too risky. With so many other better options available, there’s no need to resort to risky methods to generate positive cashflow. Just be sure to work out the numbers until the deal works and do your due diligence, and you’ll be well on your way to a profitable property portfolio.
Until next time, happy investing!