Cash flow strategy criteria

Hi all.

Looking at making another purchase start of next year with a focus on being cash flow positive. I have to admit, I find myself sold on the posts from @euro73 with regards to the need to reduce debt in these changing times. I know this can be done via a cg strategy by selling in 7-10 years time to clear debts but am not feeling too confident with where the market will be heading.

So, I am just wondering what some people look for in a property as part of their cash flow strategy in terms of minimum requirements e.g.
- min required yield after expenses
- min required yield after tax
- is cg a definite requirement or just added bonus?
- new vs old
- vacancy rates
- etc, etc, etc

Just looking to do a bit of research heading into the new year and curious to see how others have gone about making their asset selection

 

@golaza, I use NRAS as a dividend reinvestment plan /mortgage reduction plan.

Each NRAS approved dwelling will achieve significant surplus cash flow . Typically between 8-10K after tax- which is the same as "tax free".

That 8-10K surplus is then reinvested towards paying down non income producing, non deductible debt. That might be credit cards, car loans, personal loans or PPOR mortgage, or a combination of all of the above. However you view it, this approach has three very powerful consequences/effects.

1. Removing that debt offers significant improvements to your capacity to borrow, over time.

2. Removing PPOR debt also offers significant improvement to equity, even where growth is in a period of stagnation.

3. You dont have to sell.

So both equity and borrowing capacity can be improved simultaneously, even without capital growth, and portfolio expansion can be achieved off the back of that, without having to sell.

This in turn allows you to maintain improved borrowing capacity, as rental yields mature.


While the effects of the NRAS credits can be very potent if reinvested this way, opportunities to purchase NRAs approved dwellings are rapidly disappearing. And with that being the case, I believe dual occupancy will be the next best resi investment property opportunity for those wishing to pursue this dividend reinvestment type of approach within their portfolio.

Forget min yields... the statistical measurement that offers is lovely and all, but in the end it's what you will see in your hand after tax that matters, as that's what will be available for you to redeploy towards debt reduction. And its the reduction of bad debt where the reward lies.

 

Depreciation is a major consideration for cashflow. Relatively new properties or significantly renovated properties will provide the greatest cashflow benefit from depreciation.

Both of my IPs are over 40 years old yet because of kitchen/bathroom and other renovations depreciation in the first year of ownership is in the $7k to $8k range for each property. Of course you will get bigger figures from new properties.

Gross yields for my two properties are 5.4% and 6.2% respectively. Suburb vacancy rates are 1.75% and 0.96%.

Look for locations that provide adequate yields for your properties to be cashflow positive. Also look at locations with these yields that will provide drivers for growth through gentrification, infrastructure improvements, etc.