Lots of people choose property investment because they think they can build wealth through the cash flow. However, you may need to reevaluate your view on property and how it works. Your rental return is important when it comes to property investment, yes. However, it is not something that can pay your vacation.
There are stages you need to pass before reaching the stage where you can live off your cash flow. Before then, you need to establish your asset base until it is big enough for you to lower your loan. Therefore, it is clear that asset growth comes first before cash flow when it comes to property investing.
Understand more about your cash flow in property investment
It is true that cash flow is one of the most important aspects when it comes to property investing. It what makes you keep going. It is what makes your investment survive until you grow enough asset base. What you need to do about the cash flow is to maximise your net cash flow position. Here is what you need to understand:
- You may need to contact your accountant to help you with tax deduction for your rental properties that you can claim. There is a variety of expenses regarding to your rental properties and one of them in tax deduction. If you don’t really know what to do how it works, contact your accountant.
- Another thing you should know is that depreciation happened to your property impacts your cash flow. However, depreciation is also something inevitable somehow because a building gets older throughout the years. What you need to do is regular inspection and maintenance and those will be included into your cash flow’s expense.
- Your mortgage directly influence your cash flow. In fact, interest of your mortgage is one of the biggest expenses. And keep in mind that interest rate may rise anytime in the future even when you are not prepared for it. There are various ways you can try to avoid drastic decreased cash flow due to the interest rate of your mortgage. One of them is to set aside a financial buffer in an offset account so that you will handle it well whenever unexpected expense appears.
- Another thing impacting your cash flow of your property investing is vacancy. You need to be aware that vacancy sometime is inevitable. Your property won’t be occupied all the time. There are times when it is vacant so your cash flow will be in danger. Vacant property means no cash flow and it means you still need to think of the way to earn your income to pay your mortgage.
- One of the expenses of cash flow is property manager. However, it’s small price to pay considering their responsibilities in managing your investment property. It makes your mind at peace because they can handle things related to the property as well as tenants professionally. Thus, you can focus on other things to grow your asset base and increase maximise the cash flow.