Why positive cash flow investment property will help you retire early

Positive cash flow properties benefit property portfolio builders

Residential property investment is becoming increasingly popular with professionals seeking to protect their capital from inflation. And you don’t have to buy a property that will cost you to hold every month until you decide to sell it and pocket the capital gain.

In this article, you’ll learn how to buy a positive cash flow property and the benefits of doing so.

Why investment property is now the asset of choice for professional investors

There is no point in keeping cash in the bank – low-interest rates and rising inflation simply mean your spending power is being eroded every day.

Stock markets are at or near all-time highs. Ideal for those who have already invested, but the volatile nature of stock markets isn’t a great medicine for those with high blood pressure. When stock markets fall, they tend to fall like a stone, only twice as fast. And for income seekers, every point added to the FTSE100 Index reduces the dividend yield: it’s now at around just 3.5%.

You could buy gold. But it’s around 40% below its high and precious metals doesn’t pay you an income.

An investment in property is an investment in a tangible asset that has a fantastic record of low volatility and long-term capital growth. Rental income could pay your mortgage interest and other costs, and put a little extra in your bank account. As time passes, the value of your property should rise. And increasing rent will help to protect your income from inflation.

The downside of negative cash flow property investment

Some properties might be in negative cash-flow during the first few months. You’ll have to subsidise rental income to meet expenses until you can increase rents or pay off some of the mortgages.

If you invest in a negatively geared property, all your eggs are in one basket – you are entirely dependent on the property growing in value. The more negative the cash flow, the more capital growth you need it to make to break even.

A property investment with £100 monthly negative cash flow needs to add £1,200 in value over a year to break even. If the negative cash flow is £300 per month, you’ll need the property to increase by £3,600 over the year to break even. Meanwhile, if your circumstances change and you can’t afford to continue subsiding the mortgage payments, you may be forced to sell before the property has made the gain you expected.

However, contrary to popular belief, an investment property worth buying doesn’t have to come at a monthly cost to your pocket.

How to ensure you invest in positive cash flow property

There are two primary ways in which to obtain positive cash flow.

The first of these is to invest in a property that offers a high gross rental yield. The higher the yield, the bigger the gap between your rental income and mortgage interest payments and other expenses.

The second way to ensure positive cash flow is to pay a higher deposit. The larger the deposit you pay, the lower your mortgage payments will be. It minimises your expenses and increases your cash flow.

The benefits of positive cash flow investment properties

Investing in positive cash-flow properties has several advantages. Of course, the extra income is a boost to your spending power, but professional investors are savvier than this. They know that every pound of positive cash flow is a pound closer to their ultimate goal of building a life-changing property portfolio.

Positive cash flow gives you the power to pay down debt (and therefore increase positive cash flow) or buy further positive cash flow properties (and therefore increase positive cash flow). It’s the virtuous cycle of property investing.

If you invest in negative cash-flow properties, the number of properties you can buy and the rate of growth of your property portfolio is limited to the amount you can afford to subsidise your portfolio.

If you invest in positive cash-flow properties, the extra cash in your bank account increases your ability to buy further properties. You may even decide to buy a negative cash flow property – and subsidise it with the income from a positive cash flow property – for its better capital growth potential.

How do you find positive cash flow investment properties?

It’s not easy to find positive cash flow properties, but it’s not impossible. You need to search for the best places to invest in property UK. Then you need to run your numbers and do your due diligence.

Properties with lower expenses have a greater chance of moving into positive cash flow sooner. For example, investors in new build property tend to have much lower maintenance and repair costs, increasing the likelihood of positive cash flow.

Whichever property you buy – new build or existing – it’s worth remembering that positive cash flow should provide you with the finances to reach your investment and lifestyle goals faster.

When you have that lump sum available to you, do always take advice from as many knowledgeable people as possible. To have an informed decision about whether property investment could provide your desired lifestyle benefits and meet your financial objectives in retirement, contact one of the Gladfish team on +44 (0)207 923 6100.

Live with passion,

Brett Alegre-Wood

Brett Alegre-Wood
August 24, 2017

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