Negative Cash-flow Investment Properties Are Better.
In times of economic uncertainty, speculators convert their holdings to gold or put their cash in the bank.
One of my private clients phoned last week to ask isnt a cash flow positive portfolio the best strategy for the moment?
The answer is NO.
The principal attraction of positive cash flow properties is that they are supposed to provide you with an income, after all expenses.
Ignoring the issues of paying full stamp duty on the purchase and virtually zero depreciation, in reality you can only find such investments in regional Australia, where there is very little capital growth.
Now the banks know the risks of those areas such as reliance on one industry for employment.
So they compensate by lending a lower percentage of the investment not the 95% that you can reasonable expect in the capital cities. They may only lend you 75% of their valuation.
The real risk is that if the local economy goes into a slow decline, or a rapid nosedive, you will not be able to find a tenant, and secondly you probably wont be able to sell.
A negatively geared investment a family home in a growth corridor, adjacent to a major economic zone, where rents are above the average, and where land taxes are low is always your best option.
And they generally become cash-flow positive within ten years.
