By Cam McLellan
As the new year is upon us, and most of you are probably thinking, if you’re not already – 2016 is the year to kick start your investment plan. So what kind of property should you invest in, be they cash flow properties or growth properties. I’ve never bought into the old cash flow versus growth argument. I believe all growth properties are also cash flow properties although sometimes you might need to wait for two years or more for an investment to become a cash flow property, depending on the market.
At the moment it is happy days for investors and all good growth properties should be cash flow properties. I’ve heard of people getting 4 per cent interest rates and in some cases they’re also achieving rental yields of 5 per cent. This means that if they have already put in some equity, they have a growth property which also puts some cash in their back pocket right away.
So now is a great time to buy a growth property investment; as long as it’s in the right area of course. This means you will have the real advantage that it probably won’t cost you anything to have your property. You can also take advantage of depreciation, to offset your income. At OpenCorp.Ww believe in buying growth properties because real wealth is determined by the bank panel valuation of your future portfolio.
Traditionally, if you solely focused on cash flow positive properties you would be looking to buy in regional towns or on the outskirts. A good 10 years ago I looked at a block of six units, in Moe. This brown brick box had three units on top and three below. They wanted $180,000 for the six-pack and when fully leased, it would have been crazy cash flow positive.
I drove out there for the day to have a look at the units and as I walked in the agent said, “Two of these haven’t got tenants at the moment.”
That was alright, it still sounded positive and so I kept looking around.
Now I might be exaggerating a little bit here, but at one point I saw what looked like a police outline of a body on the ground! Then a bloke I’ll call Macca staggered in. It was about 10 in the morning and he had a Bundy can in his hand.
Macca says to the agent, “Hey Johnno, I’m movin’ out at the end of the week!”
So there were two units vacant, with another to be vacant at the end of the week and Macca was an example of the quality of tenants I could expect. I quickly backpedalled out of there and drove back to Melbourne. That was a minus-one to cash flow positive property.
As an investor I think it is absolutely awesome every time interest rates go down because it gets the economy going. While the majority of people might say it is a terrible thing because as interest rates go down, property prices go up; as an investor, this is music to my ears! I will bask in the growth of my portfolio and the fact that the investments cost me very little, if anything, out of my back pocket.