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Positive and Negative Cashflow

March 7, 2021
Positive and Negative Cashflow

Positive cash flow is the receipt of more cash than was paid out; negative cash flow results from paying out more cash than receiving.

Positive cash flow property is defined as property that makes more money than it costs you to hold it.

Negative cash flow property is defined as property that takes away more money than you earn as rental income.

Conversely, business cash flow, much like property cash flow, serves as an indicator of a company’s financial well-being. A positive business cash flow implies that the company is generating more revenue than it is spending on operational and capital costs.

Although sometimes referred to as positively or negatively geared property, these are not exactly interchangeable definitions.

It is actually possible to have a negatively geared property, with large deductions for depreciation that produce a tax refund, that hence make the property have a positive cash flow.

Finding positive cash flow property is not the easiest task, but it is possible. Websites such as homesales.com.au can assist in this process to help you find the right property for you.

Buyer’s agents can help you look at areas such as mining towns & can help you rent out individual rooms in a house and new (or near new) property developments.

A positive cash flow property will mean an investor does not need to use salaried income to cover property expenses and therefore enable an investor to more quickly expand their portfolio.

A positive cash flow property seems like the ideal investment strategy but there are some negative components to consider. Sometimes to get these types of properties you have to buy in bad areas or far away from home – both of which can be risky strategies. Some people also fail to take into account all the expenses when calculating the cash flow of the property.

Positive cash flow properties also have the reputation of having a lower capital gains profit on re-sale. This is not always true but must be considered.

Negative cash flow properties are therefore all the other properties and would represent the majority of investment properties. Expenses exceed the rental income, a tax refund is obtained to offset this loss but a cash flow loss still eventuates.

Property owners accept this loss with the anticipation that the loss will decrease over time and the expectation that the long term capital gain will more than compensate for many years of losses.

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