Property should always be treated as a business from day one, so you can achieve optimum results and income, whether part time or full time.
You may have heard the saying “you make your money when you buy”, which is true. Buying property at a discount is vitally important, but so is buying property for cash flow. Cash flow makes you financially free and is what will pay you monthly in your property business. Especially in a time when capital growth will take time, buying for cash flow gives you security and minimises your risk. When the income from your property business flows well, it will allow you to free up your time and have a healthy income to live. You may also wish to re-invest some of this positive cash flow which will add another string to your bow.
The cash flow is measured by taking the rent and then subtracting all the expenses, including the mortgage payment, insurance, management fees (if applicable), and maintenance costs. The excess money is positive cash flow that you can deposit in the bank. I personally always look for at least £200 per month cash flow on all my property purchases. This I feel is the absolute least an investor should be looking for in the current climate. Before the property crash in 2008 a lot of investors were happy with a property to wash its face, and as long as it did not cost them monthly they were happy. This was down to the fact they were anticipating capital growth and so rental income and yield were not so important to them.
Things have certainly changed in recent years and cash flow is vitally important in the current climate, and is now what savvy investors are focusing on. Property is essentially a long term game, and it is a medium to long term investment. If you are planning on keeping your buy-to-let properties for at least five to ten years, then it is likely you will see capital growth in this time. Buying properties that cash flow well means that you can make a solid income monthly from your portfolio and not have to just wait and rely on this capital growth.
- Peter Iwaniszewski