5 REASONS WHY
CASHFLOW IS
BETTER THAN
CAPITAL
GROWTH
WHY INVESTING IN
CASHFLOW POSITIVE
REAL ESTATE CAN
ACCELERATE YOUR
RESULTS TO
REPLACING YOUR
INCOME
The end goal for a property investor is to build a property portfolio that will create enough
cashflow after all expenses to replace your income. So, the million-dollar question is do you invest
in properties that will generate cashflow on a weekly or monthly basis or do you invest in real
estate in ‘high growth areas’ and wait until you have created enough wealth so your assets
provide enough cashflow to fund your retirement?
This guide will take you through the 5 reasons why we believe investing in properties that will
create cashflow first and capital growth second is the key to a successful property portfolio!
TABLE OF
CONTENT
S
CHAPTER 01
Cashflow vs Capital Growth
CHAPTER 02
Why should you invest in
cashflow positive real estate
CHAPTER 03
Using HMO’s to create
cashflow
CHAPTER 04
Do you even need capital
growth?
CHAPTER 05
What if you can have both
cashflow and capital growth?
CHAPTER 01
Cashflow vs Capital Growth
In the first chapter I want to discuss what we are trying to
achieve when we invest in real estate and why cashflow is the
desired outcome we are aiming for in the first place.
INCOME IS THE OUTCOME
The ultimate goal when investing in real
estate is to have an asset base that creates
reoccurring cashflow to fund your lifestyle or
retirement. But that cashflow relies heavily on
a portfolio of unencumbered assets. If you
ever want to release some ‘wealth’ your
cashflow will decrease and so will your
wealth.
CASHFLOW
Cashflow is the life blood of any business and
property investment is a business. If you
continue to invest in negatively geared
properties, you will soon run out of money to
service the bank loans and the banks will stop
lending you money bringing your property
investment journey to a halt. Cashflow on the
other hand can be used to increase your
serviceability and with the correct structure in
place you can make yourself look really
strong on paper so the bank will loan you
more money and you can continue to invest.
CAPITAL GROWTH
Investing in real estate is a long term game
and capital growth is important to create
wealth but you cannot control the capital
growth of your portfolio unless you
manufacture the growth through renovation,
subdivision or construction. Properties in high
growth area’s generally offer a low yield and
are negatively geared.
"MONEY IS
SIMPLE. BUY
CASHFLOW
PRODUCING
ASSETS –
GRANT
CARDONE"
CHAPTER 02
Why should you invest cashflow
positive real estate
When I first moved to Australia 10 years ago I had never heard
of the term ‘negative gearing’ and when someone explained it
to me it didn’t make sense, why would you invest in Real Estate
to lose money every week in the hope that the property might
go up in value?
ASSETS OR LIABILITIES
MONEY INVESTED IN AN HMO
Robert Kiyosaki defines an asset as
anything that puts money in your
pocket. A liability is anything that
takes money out of your pocket. The
big mistake that poor and middleclass
people
make,
according
to Kiyosaki, is spending their lives
buying liabilities instead of assets.
Negative gearing in the hope of
capital growth is a gamble as you
cannot control the market, you can
make informed decisions based on
certain factors but them same
factors are ultimately out of your
control.
Investing in an HMO can provide
consistent cashflow and offer returns
from 10-25% net return on your
money annually and if the HMO is in
the right area you will also have
potential for capital growth.
MONEY IN THE BANK
At the time of writing this the banks
in Australia are offering on average
3% interest on any funds you have in
a savings account.
Although your money is relatively
safe in a bank account you are not
going to create wealth earning 2%
on your savings.
"THE RICH DON’T
WORK FOR MONEY. THEY MAKE MONEY WORK FOR THEM
ROBERT KIYOSAKI"
CHAPTER 03
Using HMO’s to
cashflow
create
A HMO is a ‘House of Multiple Occupancy’ which is more commonly
known as shared accommodation or Co-living spaces. Instead of renting a
house to a family and having 1x rental income you can use that same
house and rent it out to 4, 5 or 6 people which in turn means you have
multiple incomes streams from the same house.
WHAT TO LOOK FOR IN A HMO
The more rentable rooms you have in a HMO the higher your cashflow will be. 4, 5 & 6
bedroom houses provide the best outcomes for investors and provide them with a
8%-12% gross rental yield. It is also beneficial but not crucial to provide as many
bathrooms or ensuites as possible, so each person has their own private space.
IS THERE DEMAND FOR THIS
STYLE OF ACCOMMODATION?
The demand is increasing every day for this style of accommodation as the
cost of real estate in Australia increases. HMO’s provide clean safe affordable
accommodation for a range of people from barista’s, tradies, Interior
designers & Engineers. We have created close to 200 rooms at the time of
writing this eBook and we have not even scratched the surface.
RULES AND REGULATIONS
HMO'S & CO-LIVING
AROUND
Each state in Australia has policies in place to support this
style of accommodation. In Western Australia we can have 6
unrelated people or less living in a house without having to
change the classification of the building to a lodging house.
You will need to do some internal safety modifications of the
property to put the safety of the people who live there first
which include smoke detectors, Emergency lighting, signage
and fire extinguishers.
"NEVER TAKE YOUR EYES OFF THE CASH FLOW BECAUSE IT'S
THE LIFEBLOOD OF BUSINESS" - RICHARD BRANSON
WWW.THEHMOPROPERTYCO.COM
CHAPTER 04
Do you even need capital growth?
Absolutely! Capital growth is the increase in value of your property portfolio
over time. In the last 5 years Melbourne and Sydney has seen many
homeowners and investors with properties that have seen a huge increase in
capital growth in a short period of time. Whilst there is no guarantee that real
estate will increase in value over a given period of time capital growth is still
vital when investing in real estate.
LEVERAGING CAPITAL GROWTHCONSISTENT CAPITAL GROWTH
In real estate, the most common way
to leverage your investment is by
leveraging the banks money through a
mortgage. Leverage works to your
advantage when real estate values rise,
but it can also lead to losses if values
decline. The ability to use capital
growth leverage with real estate
significantly increases the amount of
properties you can purchase.
If a property increases in value by 10%
per annum (averaged out over a
number of years) then the value of that
property doubles every seven years. So
if you owned a property worth
$500,000. In seven year’s time the same
property should be worth $1 million and
in 14 years it should be worth $2 million.
MANUFACTURED GROWTH
This is the best type of growth you
should look for as you can force growth
onto your asset, but this takes time,
skill
and
money.
Renovations,
Subdivisions,
construction
and
property development are all types of
manufactured growth strategies, but
they are not for the faint hearted and if
not executed correctly can actually
lose money. When executed correctly
though you can use the manufactured
growth you have created to leverage into
your next investment.
THE MOST IMPORTANT WORD IN THE WORLD OF MONEY IS
CASH FLOW.THE SECOND MOST IMPORTANT WORD IS
LEVERAGE. - ROBERT KIYOSAKI
WWW.THEHMOPROPERTYCO.COM
CHAPTER 05
What if you can have both cashflow
and capital growth?
This is ultimately the best outcome and is easily achievable with the
correct knowledge by building a HMO in a high growth suburb so that you
get cashflow whilst you wait for the growth! Below are a few of the things
to consider before you make any investment and always speak to an
accountant or a financial advisor before you invest.
DETERMINE YOUR BUDGET
How much can you afford to spend on your next investment and what type
of return do you expect? For a HMO you should be aiming for at least 10%
cash on cash return.
SELECTING A SUBURB FOR A HMO
Before you commit to building a HMO you will need to gauge the demand in
the suburb. The demand for Co-living spaces is higher in some areas than
others.
BUYING AN ESTABLISHED
BUILDING NEW
PROPERTY
TO
CONVERT
OR
There are Pro’s & Con’s to both strategies. Buying established and converting
is faster than building but you will need money for a deposit and money to
convert to a HMO. Building from new will take longer but you have a brandnew product which will be in high demand and will be low maintenance for
years to come.
"AN INVESTMENT IN KNOWLEDGE PAYS THE BEST INTEREST"
BENJAMIN FRANKLIN
WWW.THEHMOPROPERTYCO.COM
For a free no obligation 15 minute phone call to discuss
your options click the link below and book in a time..
www.thehmopropertyco.com. | info@thehmopropertycoc.om | Phone 0425 489 649