Cash flow refers to the amount of money coming in compared to the amount of money going out. For the most part, this is an uncharted territory. It is a wise choice to invest in a Moderately Priced Property (MPP). Owning a property and renting out can create a positive cash flow if the monthly rent payment is more than the monthly mortgage payment.
Cash Flow = Rental Income – Operating Expenses – Mortgage Payment
Positive Gearing – this is a situation when the purchase price and expenses of the property are covered by a higher rent. This is ideal for an area with an abundance of renters. Once all the expenses have been paid, the remaining balance is taxed. In order for the property to be a positive cash flow, it must provide a return from day one.
A negative cash flow is a rental property failing to cover the mortgage and expenses. A solution to this problem is to figure out the maximum price you can afford and break even. This will allow you to invest in properties that will not cost you money. It is important to keep track of mortgage amount, expenses and rent amount in order for you to make a profit.
A positive cash flow property is not a quick fix but can help pay off debt and possibly provide a fallback for retirement funds. The best cash flow properties to look for are newer and depreciation benefits are available early on. Older homes are an option but will result in higher taxes.