Australia’s blue-chip suburbs are notorious for poor rental yields, making holding costs very heavy on your pocket. This might be acceptable for high-income earners that barely notice a few hundred dollars missing from their income each week. But for an average wage earner, it can be very painful.
The situation only gets much worse when you consider the cash flow this property will provide you in retirement, compared to a portfolio of high-yielding properties at exactly the same value.
Learning to plant money trees
I encourage investors to see their properties like money trees. Yes, we want them to grow in value, but we also want to make sure they provide us with plenty of fruit to eat along the way.
If your trees only produce a 2% yield, you will need three times as many trees (or three times as much equity) to produce the same level of income. The difference will be life-changing!
Some investors dismiss this thought by saying they plan to sell the property when they retire, so they can access all the equity they have created. But this plan also seems crazy to me. Why would you cut down your money tree?
When you sell your property, not only do you stop receiving any additional cash flow from the property, but you also are required to pay capital gains tax.
Dual Income properties
I’ve become a huge fan of high-quality, high-yielding investment properties, located in premium locations. Some investors poorly exercise this opportunity by adding ugly ‘granny flats’ to their backyards or by targeting cheap properties in suburbs with a high percentage of renters, typically resulting in disappointment.
Over the years, one property type has emerged and stood out: dual income properties.
These properties feature innovative home designs, offering a revolutionary way for investors to collect two rents from one property. From the street, this clever design presents as an attractive large family home but on closer inspection you will discover that there are two self-contained dwellings under one roof: a completely private 3- or 4-bedroom home on one side, and a 1- or 2-bedroom home on the other. The two dwellings are divided by a sound – and fire – insulated wall, and feature individually fenced yards and entrances, offering a greater degree of privacy and lifestyle, as well as ensuring high demand from premium tenants.
This high-performance property type can often flip an investor’s typical negative cash flow experience, into strong positive cash flow, from day one.
Today, there’s a new ‘king of cash flow’ in town and it has been delivered amidst a perfect storm of market conditions, including a vast shortage of rental properties nationally, rising rents, and historic low-interest rates.
Record low vacancy rates in hundreds of postcodes across Australia have seen thousands of rental applicants unable to secure a property. The harsh reality of this situation has added further fuel to the fastest growing global rental trend – Co-Living.
Not to be mistaken for a Boarding House, or casual ‘rent a room’ scenarios designed to generate some extra income from a spare room, Co-Living is a sophisticated investment strategy. Tenants attracted to this specialised rental opportunity are typically of a far higher quality than first imagined. Many are strong income earners who prefer not to live alone, or the need to drag furniture with them when taking on a work contract in a new location.
Clever home designs that cater for the rising Co-Living often attract $275 to $350 per week from each tenant (3 max per house), making this exciting new investment strategy capable of 6% to 10% rental returns.
Yes, that’s up to 5x the rental return achieved by most property investors!