In this week's Ask An Expert feature, David Whitburn talks positive cash-flow.
I am a newbie investor and find myself struggling with many investment jargons thrown around at APIA meetings. What is ‘positive cash-flow’? How important is it to have a positive cash flow? How do I achieve it considering I am only on my first property?
There is a lot of jargon in property investment. Positive cash-flow is where the rental income from your property exceeds the outgoings (rates, insurance, repairs and maintenance). Positive gearing is where the rental income from your property exceeds your loan repayments.
With the centuries long old trend of population increases in Auckland, and the fact we are the third most liveable city in the world, house prices are rising in Auckland. Our gold sponsor Barfoot & Thompson publishes excellent data on house prices and rentals, which shows a gross yield of 3.7%. Interest rates are at least 2% higher than this, let alone extra costs for rates, insurance, and a provision for repairs and maintenance. If you are wanting to build a sizeable property portfolio since the banks look at deals with a higher interest rate to best ensure you don't get into trouble (a stress test), you need to focus on cash-flow or you are likely to get your loan applications declined as you try to build your portfolio unless you have high cash-flow from other sources. Speak to ANZ at one of the next APIA meetings for further advice on this. They have run some numbers for me through their calculators in the past to test scenarios. I have noticed that many APIA members have things like home and income properties such as minor dwellings, and inner city studio apartments to provide solid cash-flow for them in the current market.
David is a project manager with Fuzo, a medium density housing development specialist. His passion is to create good property projects and connecting passionate people. David is a past president of the Auckland Property Investors' Association, a trusted media commentator, and a bestselling author.
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