I’ve been asked a lot about cash flow lately and following on from last week’s blog, I thought I would give you a run down on what can reduce or affect your cash flow. Some of these things are often overlooked and can significantly impact the profitability of an investment property.
Maintenance and Repairs: Rental properties require regular maintenance and occasional repairs. These costs can quickly add up so it’s important to budget for ongoing maintenance and factor in potential repair costs when calculating cash flow projections.
Vacancy Rates: Another potential cash flow detractor can be those periods when a property sits vacant. While there is no rental income being generated, expenses such as mortgage payments, Strata/Body Corporate Fees, and utilities still need to be paid. High vacancy rates can be caused by factors such as location issues, oversupply in the market, or poor property management.
Insurance Costs: Protection against possible damages and liabilities is vital. Ensuring you have the insurance coverage suitable for you is something that is often overlooked. Insurance premiums can vary depending on factors such as property type, location, and coverage options. It’s crucial to factor in insurance costs when evaluating the cash flow of a rental property.
Interest Rate and Tax Changes: Mortgage repayments are a significant expense for property investors. Fluctuations in interest rates can impact cash flow if rates increase. It’s important to consider potential interest rate changes and assess their impact on the property’s cash flow.
Taxation laws and regulations can have an impact on the cash flow of rental properties. Changes in tax rates, deductions, or negative gearing policies can affect the overall profitability of the investment. Staying up to date with tax laws and seeking advice from a tax professional is essential to understand the potential impact on cash flow.
Market Conditions: Keep one eye on the market conditions, observing any changes in rental demand or property prices, which can potentially affect your cash flow. If rental prices decline or the market becomes over saturated with rental properties, it can be challenging to maintain high rental yields. Monitor the market conditions and make adjustments to rental rates if necessary.
We find ourselves in an amazing time of major under supply for the demand in rentals. With another 400,000 migrants hitting our shore over the next 12 months added with our divorce rate being over 50%, (requiring 2 dwellings once the family separates), and the normal increase in housing needs for those leaving home, this is not something that is going to change for a very long time to come.
So to mitigate these cash flow issues, it’s crucial to conduct thorough research, develop realistic financial projections, and regular monitoring and management of the current market trends.
But most importantly, seek professional advice early on. There is a world of help out there and I’m only a phone call away from helping you to address these potential cash flow detractors whilst in their early stages.