Why chasing high cash flow properties may be detrimental to your wealth


Everyone likes cash, don’t they?

While most of us don’t have much of it in our wallets anymore because it’s been replaced by a bank card, that doesn’t mean that we don’t spend much of our lives wanting more of the stuff.

Whether it’s through a salary or starting a business, most Australians would like to have more cash at their disposal.

The problem with such a mindset, though, is that the desire for cash drives some investors to buy the wrong type of property.

They see the phrase “cash flow property” and they start daydreaming about filling a bathtub full of $50 notes – just because they can.

The thing is, while you need cash flow via rent to make the mortgage repayments every month, it will not make you rich.

Indeed, chasing high cash flow properties may actually be detrimental to your wealth.

Here are three reasons why.

1. I’ll have some of that

If you buy a property that is a positive cash flow, then that extra money is classed as your income.

What that means, in reality, is that bathtub full of $50 notes turns into $20 notes instead because you will have to pay a proportion of it to the tax department.

It might feel nice to have extra funds coming your way from rent, but no one got wealthy on an extra few hundred dollars a month, did they?

2. Slow capital growth

Now, while the cash might be flowing in your eyes, the property that you have bought probably isn’t growing in the capital very much.

That’s because so-called cash flow properties are usually located in the outer rings of cities or in regional areas, which are generally quite sensitive to economic cycles.

Also, because there is usually less demand from buyers, properties in those locations don’t tend to increase in value as much as they do in our major cities over the long term.

3. Finance wobbles

At the end of the day, banks are in the business of lending money, but that doesn’t mean they don’t have certain types of borrowers that are their ideal customers.


Source link

Call Us Now