WHY I LOVE CASH-FLOW POS­I­TIVE IN­VEST­ING

JASON WRIGHT EX­PLAINS how he uses his per­sonal ex­pe­ri­ences as an in­vestor to help clients grow their port­fo­lios while grow­ing the rent roll at the same time.

Elite Property Manager - - Contents - Jason Wright

My mother bought a tiny rent roll in 2009 and in a very short pe­riod had dou­bled its size. Af­ter some coax­ing on her part, I took the gam­ble, went part-time in my res­tau­rant man­age­ment job and started to grow the rent roll, not know­ing where to be­gin.

Like any new BDM, I did all the ob­vi­ous things: let­ter­box drop­ping, mail-outs and con­tact­ing ex­ist­ing own­ers. Where I suc­ceeded, how­ever, was in help­ing first-time in­vestors, ev­ery­day peo­ple buy­ing their first prop­erty and sub­se­quently buy­ing oth­ers.

As mum and I built our port­fo­lio in the north­ern sub­urbs of Ade­laide, I quickly iden­ti­fied some in­cred­i­ble buy­ing. Houses in good con­di­tion were selling for be­tween $150,000 and $200,000, with re­turns from $220 to $260 per week. Brand new stock was avail­able at $235,000 with re­turns at around $280 per week. As prop­erty man­age­ment spe­cial­ists, I was able to build some in­cred­i­ble re­la­tion­ships with sales­peo­ple. This en­sured I was able to show my clients new stock prior to it hit­ting the mar­ket.

Ea­ger to share my new-found knowl­edge, I lit­er­ally grew our rent roll over the din­ner ta­ble. Ev­ery time I went to a din­ner party or had drinks with friends it was a new op­por­tu­nity to talk about what I did. My pas­sion was ob­vi­ous and con­ta­gious. Care­ful not to give fi­nan­cial ad­vice, I would talk ex­cit­edly with friends and col­leagues about cash-flow pos­i­tive in­vest­ment whilst sug­gest­ing op­por­tu­ni­ties through­out Aus­tralia, but al­ways fin­ish­ing with “I'm not an ac­coun­tant or a fi­nan­cial plan­ner; I'm just a guy with a hobby, so I rec­om­mend you seek in­de­pen­dent ad­vice.”

Un­til the end of time, fi­nan­cial plan­ners, strate­gists and bro­kers will ar­gue pos­i­tive gear­ing vs neg­a­tive gear­ing vs shares. I'm not here to de­bate that at all. I sim­ply want to tell you why I love pos­i­tive gear­ing.

ANY­ONE CAN DO IT!

Al­most any­one with a sta­ble in­come and a small sav­ings ac­count, or a small amount of eq­uity, can buy their first in­vest­ment. In South Aus­tralia, you can get started with as lit­tle as $15,000. Whilst lenders are start­ing to tighten their lend­ing cri­te­ria, there are still some good deals. Add stamp duty and you can still get a house in Ade­laide for un­der $200,000, with re­turns around $230 to $260 per week.

As a gen­eral rule of thumb: $1 re­turn per $1,000 spent + 10 per cent = Cash flow neu­tral $1 re­turn per $1,000 spent + 20 per cent = Cash flow pos­i­tive.

THERE IS AL­WAYS DE­MAND FOR CHEAPER PROP­ER­TIES

As we come to terms with higher than av­er­age va­can­cies, there will al­ways be a need for low so­cioe­co­nomic hous­ing. Peo­ple fear low so­cio, but there are good and bad peo­ple in ev­ery sub­urb. A great prop­erty man­ager and the right in­sur­ance pol­icy will en­sure the client is safe­guarded against bad ten­ants.

CASH-FLOW POS­I­TIVE CAN STILL GEN­ER­ATE CAP­I­TAL GROWTH

Friends and col­leagues who are pro neg­a­tive gear­ing will ar­gue about the cap­i­tal growth ra­tios. Most strate­gists will tell you that buy­ing and hold­ing al­most al­ways re­sults in cap­i­tal growth. My opin­ion is that the sky's the limit on the num­ber of cash-flow pos­i­tive prop­er­ties you can buy as long, as the banks con­tinue to lend you money.

How­ever, most ev­ery­day peo­ple on av­er­age in­comes can only buy one or two neg­a­tively-geared prop­er­ties be­fore it im­pacts sig­nif­i­cantly on their way of life. Many young cou­ples get caught in neg­a­tive gear­ing and then face the re­al­ity of hav­ing to sell when one of them gives up work for a pe­riod, maybe to start a fam­ily. Pos­i­tively-geared prop­er­ties give you the flex­i­bil­ity of ad­di­tional in­come to in­crease your port­fo­lio or take a hol­i­day or pay for school tu­ition.

Whilst the cap­i­tal growth may not be as high, when you weigh up no hold­ing costs and no im­pact on your way of life over a 10-year pe­riod, the dif­fer­ence may not be that sig­nif­i­cant.

CRE­ATE LOYAL CLIENTS

When you build a rent roll based around help­ing peo­ple be­come in­vestors, they quickly be­come rav­ing fans. They buy a sec­ond, third or fourth prop­erty in a very short pe­riod of time and they re­fer their fam­ily and friends. As you've as­sisted in their wealth growth, they are more for­giv­ing when you make a mis­take. ■

MOST EV­ERY­DAY PEO­PLE ON AV­ER­AGE IN­COMES CAN ONLY BUY ONE OR TWO NEG­A­TIVELY-GEARED PROP­ER­TIES BE­FORE IT IM­PACTS SIG­NIF­I­CANTLY ON THEIR WAY OF LIFE.

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