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Empower Wealth Blog post by Empower Wealth

Positive Cash Flow Property

Given the well documented shortage of available residential property to house our growing population, rents have been on the increase for some years now.  In fact, rents across Australia grew by 9% last year and forecast figures quoted in 2007 were for rents to increase by as much as 50% over the next 5 years, whether that figure actually materialises will depend in two things:

  • Positive immigration/migration to major cities/employment centres continues
  • Availability of rental accommodation remains tight.

The current tight market has lead to rental yields moving past 4% and in some areas rental yields of over 6% are being achieved.  Combine this income with historically low loan repayments of 4% -5% and you get a strong argument that residential investment properties could in fact be neutrally or positively geared moving forward, especially  when you factor in possible tax advantages associated with investment properties.

This rare alliance of high rents and low interest rates will be sure to generate a lot of press about positive cash flow from property.

This may result in many educated investors believing property may now be a lower risk investment, in these uncertain times.  Especially given the only variable which differentiates residential property from any other investment – that being ‘People need to live somewhere’, so this demand principal is holding up well given the overall shortages of housing we are currently seeing.

History tells us, as it did in 1996, that such an event as; high rental demand and low interest rates, will certainly bring investors back into the market place; given other investments short term outlook appear a little more risky than residential property currently.    These windows of opportunity usually don’t last very long, as was true when strong price growth occurred in 1997 after pretty much everyone realised residential property was a good investment option.

It’s fair to say, we are quite bullish about this new window that is opening for investors however, one key risk, in our opinion, remains:

Asset Selection: We must choose wisely as investing in just ‘any’ residential property is not a guarantee for investment success
So, you must make the right asset/property selection decision and to do that you need the right knowledge.

 

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