Sat 23 Jul 2016

Most investors would think generating positive cash flow is the only way to go, but it actually has certain disadvantages worth considering. And, believe it or not, there are many positive cash flow properties that end up losing money. This article explains the dynamics behind positive cash flow and the associated risks.

By definition, positive cash flow property is a property investment that generates more income than expenses over the course of a year. Such property is usually found in areas of town where interest repayments are low and rents are high.

It’s always desirable to have some positive cash flow property investments in your portfolio, though sometimes it’s not always the fastest or easiest way to reach your financial goals. For instance, it can be a challenge to find a positive cash flow property. Also, negative cash flow property investments may yield much higher growth through capital gains over the long-term.

Here are some of the pros and cons of positive cash flow property investments you’ll need to consider.

Advantages of positive cash flow:

  • Positive cash flow property normally costs less than negative cash flow property, and can also offer lower taxes and stamp duty.
  • Income generated from positive cash flow can cover the cost of renovations and loan repayments, as well as be used for investment in other properties.
  • Positive cash flow is a reliable way to build your portfolio steadily.

Disadvantages of positive cash flow:

  • Any profits generated are subject to tax.
  • Property values may be more volatile, as positive cash flow property is normally found in areas that are not as economically stable as others.
  • Properties generating positive cash flow may generate smaller capital gains in the end.

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