EPMEPM: BD & Growth

Why I Love Cash-Flow Positive Investing

JASON WRIGHT EXPLAINS how he uses his personal experiences as an investor to help clients grow their portfolios while growing the rent roll at the same time.

My mother bought a tiny rent roll in 2009 and in a very short period had doubled its size. After some coaxing on her part, I took the gamble, went part-time in my restaurant management job and started to grow the rent roll, not knowing where to begin.

Like any new BDM, I did all the obvious things: letterbox dropping, mail-outs and contacting existing owners. Where I succeeded, however, was in helping first-time investors, everyday people buying their first property and subsequently buying others.

As mum and I built our portfolio in the northern suburbs of Adelaide, I quickly identified some incredible buying. Houses in good condition were selling for between $150,000 and $200,000, with returns from $220 to $260 per week.  Brand new stock was available at $235,000 with returns at around $280 per week. As property management specialists, I was able to build some incredible relationships with salespeople. This ensured I was able to show my clients new stock prior to it hitting the market.

Eager to share my new-found knowledge, I literally grew our rent roll over the dinner table. Every time I went to a dinner party or had drinks with friends it was a new opportunity to talk about what I did. My passion was obvious and contagious. Careful not to give financial advice, I would talk excitedly with friends and colleagues about cash-flow positive investment whilst suggesting opportunities throughout Australia, but always finishing with “I’m not an accountant or a financial planner; I’m just a guy with a hobby, so I recommend you seek independent advice.”

Until the end of time, financial planners, strategists and brokers will argue positive gearing vs negative gearing vs shares. I’m not here to debatethat at all. I simply want to tell you why I love positive gearing.

Almost anyone with a stable income and a small savings account, or a small amount of equity, can buy their first investment. In South Australia, you can get started with as little as $15,000. Whilst lenders are starting to tighten their lending criteria, there are still some good deals. Add stamp duty and you can still get a house in Adelaide for under $200,000, with returns around $230 to $260 per week.

As a general rule of thumb: $1 return per $1,000 spent + 10 per cent = Cash flow neutral $1 return per $1,000 spent + 20 per cent = Cash flow positive.

As we come to terms with higher than average vacancies, there will always be a need for low socio- economic housing. People fear low socio, but there are good and bad people in every suburb. A great property manager and the right insurance policy will ensure the client is safeguarded against bad tenants.

Friends and colleagues who are pro negative gearing will argue about the capital growth ratios. Most strategists will tell you that buying and holding almost always results in capital growth. My opinion is that the sky’s the limit on the number of cash-flow positive properties you can buy as long, as the banks continue to lend you money.

However, most everyday people on average incomes can only buy one or two negatively-geared properties before it impacts significantly on their way of life. Many young couples get caught in negative gearing and then face the reality of having to sell when one of them gives up work for a period, maybe to start a family. Positively-geared properties give you the flexibility of additional income to increase your portfolio or take a holiday or pay for school tuition.

Whilst the capital growth may not be as high, when you weigh up no holding costs and no impact on your way of life over a 10-year period, the difference may not be that significant.

When you build a rent roll based around helping people become investors, they quickly become raving fans. They buy a second, third or fourth property in a very short period of time and they refer their family and friends. As you’ve assisted in their wealth growth, they are more forgiving when you make a mistake.

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Jason Wright

Jason has a wealth of experience in property management, business development and portfolio management with a passion for cash flow positive investment strategies. Jason is the Operations Manager for Essential Property Management