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How to influence cash flow, investment tip

Investment tip: How to influence cash flow

By Bianca Dabu

Cash flow is deemed as one of the most critical aspects of investing in properties—so much so that Right Property Group’s Steve Waters refers to it as “the second most important thing behind oxygen” for property investors.

Running a property portfolio is like running a business, according to Smart Property Investment’s Phil Tarrant, an avid investor who has successfully built a 17-property portfolio over the years.

He explained: “You have seasonal variations. You have quarterly variations. You have land tax [that] might be due this month … [then you got to pay up] $20,000, [but on] other months, you don't need to have to do the same—it is a business.”

As in any business, cash flow forecasting is necessary in property investment to consistently track your financial situation, which is often affected by different factors. How much money is coming in? How much is coming out? Do you have enough dollars in the bank to pay for it?

According to Steve: “You don't want to be the bloke on the front of the Financial Review saying, ‘I'll have to sell my property because this has happened [and] I wasn't prepared for it.’ ”

“[Right now, rates are] going to [principal and interest] instead of interest-only … If you were caught in that trap and you haven't forecasted … well, then, woe to you,” he added. 

 

Reducing cost and improving cash flow

Rent adjustment

One of the most common strategies to improve a property’s cash position is to adjust the rental fee. However, a property investor must be conscious about the timing of rent adjustment.

Phil said: “At this time of the year, I'd be suggesting not to touch rents at all. It's always a bad time of the year [when it’s] coming before or just off the back of Christmas.”

“You don't want to create any instability within the portfolio, so I'd be looking to ... do a rental [adjustment] around about … March.

“Speak to your property managers or, if you [self-manage] … test the market … [or speak] to some property managers [to see] what the appetite for rents is—what's the local dynamics in a particular market … [or] streets, etc.?” the property investor added.

Oftentimes, property managers are more reliable than websites like realestate.com when it comes to determining the necessary data for rent adjustment. After all, different streets attract different rents and no matter the abundance of information online virtually nothing beats local ground knowledge.

Preventive maintenance

Aside from adjusting rental fees, preventive maintenance can also help a property investor in cutting costs.

According to Phil’s accountant Michael Johnson, the simple task of making sure that there will be no major damages to the property in the future means a lot to a property portfolio’s overall value and cash flow position. Minor fixes that cost a couple of hundred bucks is always better than spending thousands on major repairs.

Steve said: “Preventative maintenance really comes down to cash flow management … but try and time that when you have the capital available to do it. You don't want to be living in a two-minute noodle scenario just to do a bit of maintenance.”

“Always do the safety[-related maintenance] first such as lights—you don't want to be in a position where you jeopardise someone's safety,” he advised property investors.

“From a moral point of view, as well, don't be that slum-loaded. It will come back and get you,” Phil added.

Adding value through renovation

One of the properties Phil bought in KingstonKingston, QLD Kingston, ACT Kingston, TAS last June was “poorly presented”, to say the least.

In order to accommodate tenants as soon as possible, he and his team only did preventive maintenance to ensure safety for those who will be living in the property.

Now that the tenants have moved out for a while, they will be adding features like a kitchenette to enhance its appearance and improve the property’s value.

Steve said: “When the tenants left ... we [did] not only [do] some essential work but also some work to value-add in terms of its [total] value … [and] cash flow position … There is [going to be] a bit of expenditure there.”

 

‘Run the numbers’

While property investors can definitely influence cash flow through several strategies, it is important to weigh the options carefully in order to avoid unnecessary costs or losses. When you decided to push rents up, think of the possibility of having the property vacant for a while because no one could afford it.

According to Phil: “You need to weigh up … potentially getting $10 more a week versus missing out on someone for two months when you've got a property vacated.”

“It's a lever that is a challenge to the pool. How else can you influence cash flow? Preventative maintenance—spend a dollar today so you don't have to spend two dollars tomorrow,” he added.

At the end of the day, it’s about being careful when running the numbers, Michael said. You don’t want to be shelling out $5,000 just to get an additional $10-per-week in rent, especially if you can’t withstand the loss in the long-term.

“If you are going to spend the money and it's going to create you 10 per cent or 15 per cent return on that initial expenditure, well, it's … worth entertaining then as long as you can withstand the capital that's gone from your kitty, so to speak,” the accountant concluded. 

 

Tune in to Phil Tarrant’s property portfolio update to find out just how much it costs to hold his properties, considering interest rates, weekly costs, and taxes, as well as the metrics they utilise to improve cash flow and achieve continuous growth.

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Tune in to the latest episode of Property Showcase, the podcast with the inside track on the products and businesses that will help turbocharge your portfolio, maximise returns and make your overall investment experience seamless and stress-free!

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To hear more about these services, make sure to tune in to this episode of Property Showcase!

 Make sure you never miss an episode by subscribing to us now on iTunes!

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Son Pham is the accredited Head of Mortgages at Rethink Financing\/Rethink Investing. He has over 6 years\u2019 experience writing loans, over 12 years in the wealth management industry working for the likes of CBA, AMP and private practice and he is also a licenced financial planner (AFSL 326450). He has multiple investment properties that are cash flow positive which help pay his mortgage on his home and fund his lifestyle.<\/p>\r\n

Son is able to write all types of residential and commercial property loans.<\/p>\r\n

In this episode of Property Showcase, head of mortgages at Rethink investing Son Pham joins host Tim Neary to unpack how an investor should approach getting a mortgage in place with banks tightening down on serviceability.<\/p>\r\n

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    In this episode of Property Showcase, director of investment services for Open Corp Michael Beresford,\u00a0joins\u00a0editor of Real Estate, Tim Neary to share why he disagrees that the cooling market means that the best times are behind us.<\/p>\r\n

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Mortgages in a tighter lending economy and why Brisbane is a good option
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Will Magee has had ambitions to enter into the Australian property market for quite some time, but it has been more than just finances holding him back.  Having been granted permanent residency just two weeks ago, Will is wasting no time and is now in the process of signing papers and finding his first investment property.

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In this episode of the Smart Property Investment Show, Will joins host Phil Tarrant to share why he is purchasing his first property in partnership with his brother, discuss the complications that can arise from such a strategy, and unpack the ongoing plan for building a joint property portfolio with his brother.

Will will also share how they approached saving for their first property, why he is taking out the mortgage in his name exclusively, and share their savings plan for the year ahead.

If you like this episode, show your support by rating us or leaving a review on iTunes (The Smart Property Investment Show) and by following Smart Property Investment on social media: FacebookTwitter and LinkedIn.

If you have any questions about what you heard today, any topics of interest you have in mind, or if you’d like to lend your voice to the show, email [email protected] for more insights!

RELATED AREAS OF INTEREST:

From property in Australia to a ski lodge in Japan
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A property investment plan years in the making
object(stdClass)#1185 (52) {
  ["id"]=>
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  ["title"]=>
  string(75) "Regional Victoria showing up Melbourne in price performance, new data finds"
  ["alias"]=>
  string(74) "regional-victoria-showing-up-melbourne-in-price-performance-new-data-finds"
  ["introtext"]=>
  string(139) "

Median house prices in regional Victoria outperformed that of Melbourne in the June quarter, the latest REIV figures reveal. 

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Median house prices in the regions rose 4.0 per cent to $419,500 but in Melbourne they dipped by 0.6 of a percentage point to $840,000.

The result in Melbourne was due to a 0.8 of a percentage point fall in prices achieved at auction; this was despite a lift of 2.3 per cent in private sales.

Inner Melbourne suffered due to auction prices, where median prices fell by 4.9 per cent to $1,459,000 but it was middle Melbourne that was hardest hit, with a 5.4 per cent drop to $974,500.

Outer Melbourne had a good quarter with the median rising by 0.5 of a percentage point to $681,000.

Apartment prices in regional Victoria grew by 3.7 per cent to $304,500 while the metro media was up by 0.5 of a percentage point to $604,000.

REIV President Richard Simpson said that despite fewer sales, many sectors of the market were performing well.

“2017 was a bumper year and while the trendline has flattened, despite the fall in median house prices in the June quarter, median prices are still up this calendar year for both houses and units, in Melbourne and in the regions,” Mr Simpson said. 

In particular there was been strong growth in regional centres which is probably due to the first-home buyers’ concessions said Mr Simpsons.

“The first-home buyers’ concession has been a boon for regional areas. A new entrant to the property market buying a house at the regional median will pay no stamp duty, while a first home buyer of an apartment in Melbourne at the median price would pay stamp duty of nearly $25,000,” he said.

Mr Simpson said that more prospective buyers are looking towards regional Victoria which is also having an effect in Melbourne.

“Melbourne’s outer perimeter continues to grow. Small increases in the June quarter mean that the median prices for both houses and units have risen over 10.5 per cent from a year ago.

Mr Simpson said moving forward that vendors need more realistic expectations as the highs of 2017 are now over.

“Negative chatter about the future of the sector coupled with stronger lending controls by financial institutions has created some uncertainty and vendors need to be realistic with their price expectations,” Mr Simpson said.

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Regional Victoria showing up Melbourne in price performance, new data finds

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