Investment Property Cash-Flow: The Opportunities and Pitfalls

Thursday, March 13, 2014

Generating investment property cash flow is both art and science. For those entering into the property market with a view to earning an income, or even for those already there, juggling multiple investment properties and multiple home loans and getting the balance right can be tricky. But a solution is at hand, and it’s really quite simple. Sort of.

OK, first the art.

First, managing investments in property is about people management. To make money from home ownership, you'll need tenants, you'll need good people skills and should prepare to offer good landlord service. Remember, tenants are your customers and there's nothing like a shoddy landlord to turn away renters.

Second, selecting where you buy is as much inspiration as calculation. While there's plenty of data offering insights into where and where not to buy, real estate - like any investment - is never risk-free. Gold-paved locations can turn to dusty wastelands as a result of any number of uncontrollable factors.

Now the science.

Earning solid investment property cash flow is about managing the numbers. It's about crunching it all together and finding a way to make it work. Taxes, mortgage payments, maintenance, renos, broken leases, insurance, rental prices can all influence your income with surprising speed.

Should you negatively or positively gear? How much should you budget for wear and tear? Renovations in kitchens and bathrooms are most lucrative in the long term; should you invest in new fittings? How can you attract the right tenants?

Some of this is legal stuff, some discretionary decision making. It's not for the faint-hearted or the disorganised as managing a property takes dedication. Ask yourself: do you have the knowledge and tools you need? How can you get the advice you need to excel?

Multiple home loans, mortgages at different interest rates and various issues associated with multiple investment properties can add to the potential nightmare of complexity.

Don't fear. You probably do have what it takes. You just need to be focussed.

Most experts would agree that the art and science of generating sustainable investment property cash flow should be based on four simple factors.

First, before you enter the market, set yourself some rules, strategies and goals.

Second, develop a quantitative model that works for one property or 100. This template can then be utilised across your growing portfolio.

Third, be willing to adapt your model should circumstances change. Don't be afraid to re-evaluate your approach every now and again.

Fourth, don't forget the human factor, which brings a measure of unpredictability.

Basically, balancing the art and the science of property investing is the key to managing your investment property cash flow. And enjoying the ride, the exhilarating wins, the occasional losses. That's kind of important too.