Good day. My name is Ben Everingham, and I’m the director here at Pumped On Property. Today, I’m going to talk about cash flow positive properties, and talk about, do cash flow positive probably still exist in Australia?
Good day. My name is Ben Everingham, and I’m the director here at Pumped On Property. In today’s video, I’m going to talk about cash flow positive property in Australia and dispelling the myth that they don’t exist anymore. Cash flow positive properties are available everywhere if you know where to look. There’s two ways that you can achieve cash flow positive property buying, or buy cash flow positive properties. That was a bit of a mouthful.
The first way is the more passive way, and then there’s an active way. I’m going to talk about both options. We’ll talk about the passive way first, which means going into a marketplace and just buying a property that’s already positively geared, that you don’t have to do anything to, you can start making that income from day one. The first way to achieve that more passive cash flow opportunity in Australia is to look at regional markets. I personally don’t like regional markets. Anyone that’s watched a few of my videos would know that. I just like capital growth, as well as cash flow. That’s the only reason why, but regional markets provide great opportunities for that.
Some people might consider like Hobart or Adelaide are not a sure market, but in my mind, they’re major regional markets. I know for a fact that there’s great opportunities down there right now if cash flow is your only intention. You can buy a house in an area and maybe get a 6% or an 8% return on your investment. I know there’s other regional markets around that you can easily achieve that.
One of my friends and one of my referral partners runs a great business in a podcast called the On Property Podcast. He specialised in finding positive cash flow properties in regional markets. For a small subscription fee, I think he offers around about 150 investors across Australia per year access to 10 positively geared property listings around Australia, generally priced I think between $150,000 and $500, 000 per week emailed directly to them.
If positively geared properties are what you’re looking for, that’s probably a great place to start if you just want to start identifying the markets that they’re available, regional is one option. The next option is commercial. Commercial properties on average have much better rent returns and far lower holding costs, as well as far better lease terms. I’ve got friends that have bought commercial properties that have anywhere between a 6% and a 15% return on their investment. That can be another great option if you’re looking for something that is positively geared from day one.
Just remember that commercial property fluctuates at different times of the cycle outside of the residential property market cycle. Things like global financial crisis, etc. depressions & recessions can have a major effect on your cash flow. The banks also ask for a much larger deposit, so just be mindful that commercial has got its positives and its negatives like residential does as well.
The last passive option, I suppose, where you can just and go buy a product off the shelf and it delivers for you from day one would be a block of units. I’m not talking about a block of units that you go in and just try to title and then sell them off individually or have all of them on different titles. I’m only talking about the old four-packs, six packs, eight packs, 12 packs of units that are available all around Australia where you can buy them cheap and you can get a great rent return.
An example of that, is we helped a client buy recently a four-bedroom … Sorry, not a four-bedroom, a four pack of units. There’s one three-bedroom unit and then three two-bedroom units. We bought it for I think it was $496,000 in a major regional marketplace. Each of those units we’re getting in a decent yield. We asked the tenants if they’d like to stay, and if they would like to stay, if they’re happy for us to increase the rent if we renovated the product, cleaned up the product. Now, that client’s getting over 9% return on that deal. That’s an opportunity again.
Just remember again there’s positives and negatives of everything. The negative with a four-pack of units is, obviously, you’ve got four kitchens, you’ve got four bathrooms, you’ve got four sets of tenants, so the cost of holding that type of product from a maintenance perspective for 500k can be far higher than buying one property for 500 grand with one kitchen, one bathroom, one tenant. Just remember that sometimes gross figures don’t necessarily mean net returns after all of the expenses and costs. Again, four packs, eight packs, 12 packs units can be great opportunities for the right person in the right market at the right time.
There’s another side of finding positively geared properties in Australia. That is more creating a positively geared opportunity for yourself, and there’s four major ways to do that. There’s building granny flats, building or creating a dual-income property, renovating a property, cleaning it up and improving the cash flow position, and then split a block opportunities.
Other ways to do it, there’s things like boarding houses, there’s townhouses, there’s renting by the room, but they’re strategies that I don’t know a huge amount about, so I’d be speaking out of school if I was talking about them. I love the granny flat. I’ve got a decent size property portfolio. At least three of the properties that I own have active granny flats in them. I love the cash flow from them. I love the fact that it diversifies my risk and I love the fact that it provides a little bit of surplus income to help me pay down debt on other properties or save for renovations or save for another property. Granny flats can be a really cool example.
On the central coast of New South Wales, for example right now, if you look in the right suburb where the vacancy rates are below 2%, you might be able to build a granny flat for let’s say $110,000, $130,000. In some instances, they’re renting for between $300 and $350 a week if they’re the right product. You can do exactly the same thing in parts of north Brisbane at the moment, although the yield is a little bit low, the cost of the building is also lower. Granny flats can be a great addition to an existing property.
We’re not talking about building a shitty, little granny flat out the back like everyone in Sydney seven years ago. We’re talking about a really nice, mini two-bedroom home with a deck, creating a bit of a battle-axe block. You’ve got your existing house on the front. You put a driveway down the side with the carport and then your two-bedroom granny flat at the back, and put a nice fence separating the house and the granny flat so that it’s completely self-contained. The front house is still happy because they’ve got a home and they’ve got their yard. Then, the granny flat’s the same because they’ve got their granny flat deck & got their car accommodation. They’ve got their own driveway. It’s completely secluded and separate. They’re not for everyone, but they’re a great opportunity to get a 6% to 7% yield right now. In some instances on the central coast, I’ve got clients getting 8% yields.
The next option is building a brand new dual-income property. Just be careful because so much of that product at the moment is being sold through property marketers, probably 80%, 90% of it, or financial advisers or accountants, so some of the people in the industry that you think should be doing the right thing by you, but they’re not. Those people are making huge commissions and they’re selling crappy dual-income properties in crappy markets that are never going to actually do anything.
Make sure that you don’t just get caught up in the fact that, “Oh, my God, I’ve bought for 400k or built for 400k and I’m getting 600 bucks a week rent.” Do your due diligence. Do the fundamentals on the suburb. Make sure you get longer term capital growth as well. Make sure you’re making some money on the way in. Make sure there’s a demand for the product in the marketplace and make sure that you’re building the right product for the market as well.
Renovating can be a great option as well. There’s plenty of examples around Australia of people that have bought properties for anywhere between 200 and 600 grand going into a little cosmetic renovation to nicen it up and can easily increase the rent depending on the area by anywhere between 20 bucks and a couple hundred bucks a week from doing that activity. That’s suburb by suburb and market by market dependent, but I think it’s a really, really good way of adding some easy value. Just be careful you don’t over-capitalize and you look at it as an investment. What is the return on that money and time that you’re spending? Is that time and return on that money the best use of that time or money at the time? That didn’t make any sense, but you know what I’m trying to say.
The last option is obviously the split a block. Maybe you split a block. You sell one piece of the land, you pay down some debt on the house. When you build the house on the block, obviously, the debt is lower so the property can be positively geared. Alternatively, you might split a block, build a house with a granny flat or a dual-income property on that block and sell off the other one, or build on and sell on the other one as well.
There’s so many different options in the market at the moment, but positive cash flow is still very much active and available in Australia. They still exist. There’s options in capital cities for positive cash flow. There’s options in regional markets. There’s commercial product. You can be passive about it and just go and buy it. You can be active about it and just go and do it. There’s opportunities out there.
Until next time, stay hungry.