Invest For Cash Flow Or Capital Gain?

Like most Australian investors, you probably use the old tried and true buy and hold model, and purchase properties that are usually negatively geared. This means that you might be losing money each month. This might not be an issue for you; like most buy and hold investors, you probably invested for capital gain. Your exit strategy will be something like ‘sell the properties in a few years and retire’. Sound familiar?

You may have noticed however, that negative gearing is not the magic bullet it used to be, and the costs around property investing make it less attractive. As growth in the property market has slowed significantly since the Global Financial Crisis hit in 2008, capital gain is looking less like a savvy investment strategy and more like a gamble. If you look into what your current properties are worth, you may find that you have not seen the increase in property values that you were expecting – and this is something a lot of those investing in property have been facing in recent months.

If you find this is the case, you may want to look at changing your investment strategy. Now might be the time to invest in property for cash flow instead of capital gain; that is, you will now be looking at properties that actually, actively make you money. It is certainly possible to turn some of your negatively geared properties into cash flow generating assets. Installment contracts are just one way you can achieve this – and you still get to lock in your capital gain for later down the track.

Depending on the investment strategies you use, you can still minimise any tax implications while maximising your cash flow – this is something to speak to your financial advisors about but it can definitely be done.

You may find you’re able to give up full time work as a result of investing for cash flow, remembering that you still have the capital gain to come – locked in via the installment contract. In fact, with the capital gain and the cash flow streaming in from your positively geared property, you really can have the best of both worlds. If your negatively geared properties are starting to really bite into your income and impact your lifestyle, it might be time to look at changing your strategy. Flexibility in investing can be the difference between successful income generation, and costly mistakes.