A positive cash flow property is where the rental income exceeds all associated costs, preferably before tax.
(‘After tax’ returns may well be higher taking allowances for depreciation and tax deductions into account).
To work this out make up your own spreadsheet or download one from the internet. Dolf de Roos is one well known property investor I know of who sells software for doing this.
Your spreadsheet needs to include the following:
- Interest and loan costs
- Bank and accounting fees
- A property manager (if you employ one)
We employed a property manager and she was worth her weight in gold. Many investors end up selling their rentals as they find the upkeep and tenants too much of a hassle. Cost it into your spreadsheet…let a professional deal with the problems! It’s worth it.
Here are some photos of our first purchase. It was a house with a minor dwelling at the back. Two streams of income reduces your risk.