Is Increasing property cashflow is the best option

Some investors believe that increasing cash flow is the best option for the long term, sustainable wealth.

There have been several trends over the last few years that have been designed to trap cash flow investors with the offer of high rental returns.

These types of investments offer a much higher yield because put simply, there are more risks involved.

They may not seem evident at the time, but in the current environment they are standing out and are a major thorn in the side for those that have chosen to prioritise cash flow.

Here are my thoughts;


Probably one of the newer trends in the marketplace, given the introduction of the Air BNB platform.

Buying properties in high demand lifestyle locations or holiday destinations to achieve a greater yield.

Unfortunately, the demand for this type of investment has come to a screeching halt over the past few months.

Adding to the hygiene risks has been the closing of borders and international visitors stopping, that has seen demand drop like a stone.

It has resulted in many owners returning to the traditional model of finding longer term tenants to cover the mortgage.

Which completely undermines the reason for undertaking this strategy in the first place, as you are now stuck with poor cash flow and almost always a poor growth asset.

Student Accommodation

This option has been around for many years and has been a growing trend also, particularly around the inner city and university locations.

Universities attract a huge range of students from overseas, as well as local and interstate.

Investors have rushed to take advantage of this trend and have not only built new properties to cater for students but have also chosen to modify existing properties to rake in additional cash flow.

Investment properties that have been modified to squeeze an extra bedroom or bathroom in to boost the rent.

But with Universities closed and borders shut to interstate and overseas students, the well has dried up and there is nowhere to turn.

Investors face long vacancy periods as these properties are not attractive to the average tenant of families and young professionals.

As they have been purpose-built or have been modified, they are considerably harder to liquidate also, especially in this market.

Dual Occupancy House and Land

Another Cash Flow strategy I see major issues with, in the current environment is building a new dual occupancy property.

Some investors are often sucked in with the promise of high rental returns, from a new property offering two incomes.

It always comes back to Supply and Demand and there is a telling story in many of these locations.

These locations are often in areas 30-40 km plus form our CBD’s and, in these locations, there is an abundance of land = High Supply.

On the flip side, demand is likely to not be there

This is where property prices could well fall the 20% – 40% that the media has been touting as demand falls off a cliff, but high supply remains and will do so for decades to come.

This will also see cash flow fall, as people avoid these types of assets in favor of traditional style homes at now similar prices.

On the Other Hand
If you can get these properties in the 30-40 km plus form our CBD’s in areas of less land supply and high rental demand. Then you are likely to be on a winner

In Conclusion

There is a natural attraction for investors to build more cash flow.

But they do not need more cash flow now, they will require it in years to come as they need to replace their exertion income approaching retirement.

In many cases a higher rental yield will usually be on offer to cover the higher risks involved.

In a solid or standard market these risks seem manageable, but in times like we are seeing currently, they become too great for many.

With borders closed to local and international tourists and students the Air BNB fad and Student Accommodation strategy face serious hurdles as demand sharply declines.

For those that have chased cash flow with dual occupancy in inferior locations, with high supply they also face issues.

If investors dug a little deeper, they would realise that greater cash flow is often much riskier and is not actually getting them any closer to their goals.

They need a strategy around capital growth and asset appreciation.

Cash flow keeps you in the game, but it is the capital growth that can be life-changing.

Jason Gwerder
Friday, 31 July 2020

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