That being said, many properties BECOME positively geared over time. Positively geared property sounds great in principle, but it is usually difficult to buy property that is positively geared from day 1 and that ALSO has decent capital growth prospects. (Adding applicable non-cash deductions would make the numbers even more attractive, but this property is positively geared prior to doing this).This property is said to be positively geared to the tune of $2,500 per year. ![]() The rental income is $650 per week over 50 weeks of the year, or $32,500 per year.Here’s a simple (hypothetical) example to illustrate: However, Positively Geared Property refers to property that delivers a cash surplus outright, BEFORE taking into account non-cash deductions such as depreciation. Positive Cash Flow describes a property that puts money in your pocket after all costs AND tax deductions, including depreciation, have been taken into account. Positive Cash Flow vs Positive Gearing Explained Now that we’ve covered an example of what Positive Cash Flow Property IS, let’s look at how this strategy differs from two other often confused terms…ģ. (Not a bad return, considering the property is profitable to hold every year on the way through!) Meanwhile, in the background, the property is appreciating in value.Īccording to this model, this property will accumulate $465,495 in equity in 10 years’ time. Now, $21 per week or even $83 per week may not sound like sums of money that will make you rich, but you have to remember that these cash flow figures are money-in-the-pocket, after ALL expenses have been paid. In year 10, it’s $83 per week in positive cash flow.In year 5, it’s $46per week in positive cash flow.In year 3, it’s $34 per week in positive cash flow.In year 2, it’s $31 per week in positive cash flow.In year 1, it’s $21 per week in positive cash flow.Positive Cashflow That Increases Over TimeĪs you can see, the model predicts that the positive cash flow will actually increase over time, as rental increases and other factors are taken into account. Overall, the after-tax cash flow of this property is therefore $1,079, or $21 per week in year 1.This on-paper loss enables the investor to claim a further $4,102 in tax back from the taxman.With $24,461 in total income and $34,979 in both cash and non-cash expenses, the on-paper “loss” in year 1 is $10,518.Non-cash deductions mean tax deductions that you can legally claim, but don’t need to fund out of your own pocket in the form of cash. However, there are additional non-cash deductions in the form of depreciation of the building and fittings, plus loan costs, which add up to a further $7,496 in year 1.The loan interest is $23,358 in year 1, and other rental expenses amount to $4,125, giving a pre-tax cash flow of minus $3,023.The gross rent per week is $480, or $24,461 per year after allowing for a 2% vacancy rate.This example is just for illustration purposes.) (There are many factors that go into selecting the right property, and your situation may well be different from this investor. In this case, the property is strongly cashflow positive. Here’s an actual screenshot of a property investment financial model presented to a client. Positive Cashflow Investment Property Example Let’s make this more concrete with a specific example:Ģ. The other is that you also have the potential to make a capital gain as the value of your investment property goes up over time. In fact, quite the opposite.Įarning an annual income from your property is one advantage. The potential advantage of cash flow positive property is that it doesn’t drain your household income. In other words, this is a type of investment asset that “pays you” to own it. Positive Cash Flow Property Due Diligence Checklistĭefinition: Positive Cash Flow Property is an investment property where the annual rent exceeds the total annual expenses, after tax deductions and depreciation are taken into account.Where To Find Positive Cashflow Properties?. ![]() Top 5 Benefits Of Cash Flow Positive Property. ![]()
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