Investing for positive cash flow from investment property

Could you take advantage of investing in positive cash flow opportunities?

In our last few articles, we’ve examined how investing for capital growth can produce incredible benefits. Among several capital growth topics, we’ve discussed:

Now, I love to buy residential investment property for capital growth. But that doesn’t mean investing for positive cash flow can’t be equally financially rewarding. In fact, some of the best property investors I know invest exclusively in positive cash flow property investment opportunities.

In my property portfolio, I like a mix of capital growth and positive cash flow properties. I find it gives my portfolio a lot of balance and helps it to perform in all market conditions.

In this article, you’ll learn about some of the main benefits of buying investment properties that produce positive cash flow.

What is positive cash flow?

If you invest in properties with a capital growth strategy, often you’ll be investing with negative cash flow. In other words, you have to add a little bit to the pot every month. The income the property produces doesn’t cover the mortgage interest and other costs. The payoff is after a few years when the value of the property has grown by more than the average. Capital growth properties can double in value every eight or ten years.

If you invest in positive cash flow properties, you probably won’t experience such a rapid increase in property value. However, the rental income more than pays your mortgage and investment property management costs. So, you don’t have to subsidise rental income to own a positive cash flow investment property.

7 unbeatable benefits of positive cash flow property

Some property investors won’t consider investing in negative cash flow properties, despite research that points to the potential for market-beating capital growth. The following list of benefits helps to explain why:

1.      No need to subsidise investment out of your pocket

Once you’ve paid your deposit and raised the mortgage to finance your property investment, there’s no need to put your hand in your pocket again. The rental income covers all the costs of investment and maintaining the investment property. These costs include:

2.      Subsidise your income, not the costs of investing in property

A positive cash flow property can support your income. It’s why a lot of investors buy high-yielding investment property.

Positive cash flow could help you:

  • Reduce your hours at work
  • Semi-retire, or even retire (that’s the power of The 3+1 Plan)
  • Substitute lost income when a parent decides to stay at home to look after the children

3.      Rental income helps you save for further investment

It’s good practice to put away some of your positive cash flow. It helps to build up an emergency pot to pay for unexpected repairs and void periods. It also contributes to saving for the deposit on your next investment property. The more properties you buy, the more you can save, and the faster you can make the next investment.

4.      Positive cash flow reduces investment risk

The excess rental income doesn’t simply help you to save for your next deposit. It also protects you from one of the biggest risks of buy-to-let investment: void periods.

When you have a period with no tenants (it happens), you still need to pay the mortgage. Between tenancies, you’ll have repair and cleaning bills to pay as you prepare for the next tenant. You may also have utility and council tax bills to cover. The positive cash flow from previous tenancies cold cover all these costs. So, your risk is reduced.

5.      Positive cash flow protects against rising interest rates

When you invest in positive cash flow properties, you’ll be better able to absorb an increase in mortgage rates. Your investment property income may remain positive.

Of course, if interest rates rise too far and too fast, your cash flow could turn negative. However, there are plenty of property investment strategies for when your property accidentally goes cash flow negative.

6.      Increase your borrowing power for further investments

When you approach a lender for a buy-to-let mortgage, they’ll assess your income. They’ll look at income from your job. They’ll also consider other revenue. Positive cash flow from rental income adds to your borrowing power. You’re more likely to receive a buy-to-let mortgage offer, because not only do you have extra income, you’re also proving yourself to be a talented buy-to-let investor.

7.      Positive cash flow subsidises investment for capital growth

Here’s why I hold positive cash flow properties in my portfolio. The excess income subsidises my capital growth properties. It pays for negative cash flow. My overall portfolio may be neutral. When I decide to sell properties that have produced capital growth, I’ll be left with the positive cash flow properties.

The profits from sales allow me to pay-off buy-to-let mortgages (should I choose to do so) and increase my income.

How should you invest?

The types of property you invest in will depend on several factors. These include your investment objectives. To discuss your goals and create an individual property investment strategy based on these and your personal circumstances, contact one of our team today on  +44 (0)207 923 6100. You’re only a phone call away from joining thousands of other investors enjoying the benefits of property investment.


Manny Esezobor

Brett Alegre-wood
March 11, 2017

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