Cash Flow and Growth, Here’s How

by | Dec 21, 2017

Hi everyone,

Sam Saggers here, property investor, market expert and real estate author!

As we’ve established, there are no big citywide surges of growth on the horizon for at least half a decade… so how are we profiting from real estate now?

We have 5 approaches to putting serious wealth into our pockets during this time. The approach I want to talk about today is “Massive Cash flow”. We are not interested in rural centres or mining towns. We’re doing this in inner city, high growth locations. Places you really want to be investing in for long term growth regardless of cash flow.

Right now, short stay accommodation is producing amazing results for us. We’re talking 12% yields and higher…after management costs. We’re not doing all the hard work ourselves, it’s completely hands off, totally passive. We’re seeing these results in areas that would usually only get 5.3% yields or lower because of the inner city locations.

Two interesting observations on what this means for you.


Observation #1:

Rental yields like these mean this property can potentially pay itself off in a little over 7 years.

Why do I talk about paying off the debt? Because getting the property to pay itself off effectively buys you another investment property. Follow the logic.

Buy the apartment for $600k. Let’s say you borrow the full amount because you refinance to use equity from your home or another investment property, that’s a $600,000 mortgage. If you get in the right Micro-Pocket (more on that at the event) and the property doubles in 10 years, it’s now worth $1.2 million. Sell it, pay off the debt and you have made a tidy $600,000 profit. This ignores costs etc. obviously; it’s just a simple example to explain the concept.

Now, look at the difference if during that time you also paid down the debt.When you sell at the end, you would have no mortgage to pay out, so your cash in the bank is the full sale amount of $1.2 million. That’s double the money effectively, the same as if you’d bought two investment properties.


Observation #2:

These higher rental yields can halve the amount of property you need to hit your wealth goals.

Most people I talk to say that if they were debt free, to live a comfortable life they would want $100,000 of passive income a year. To get this money in rents from property yielding 5%, you would need to own $2 million worth of real estate debt free.

How much real estate do you need if you’re getting a 12% yield to make that $100,000? To reach the same cashflow goal, all you would need is $834,000 of debt free real estate. That’s actually much less than half!

Either way you look at it, a high yielding inner-city property is effectively worth two investment properties. There’s nuance to getting this right though. It’s not a simple case of just buying any old property and throwing it on AirBnB.

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