“The currency of opportunity is cash flow - its steady stream provides the stability to navigate the waves of change.”

7 Reasons Why Cash Flow is Needed Now, More Than Ever

The buzzword across Australian media recently is ‘negative gearing,’ as the released annual Treasury summary of tax expenditures showed that costs for owning and maintaining investment properties are out of control – to the tune of $27 billion. That’s a major burden to the Australian government, but even more unfortunate is that across the 2.2 million investors, it’s a loss of $12,053 per investor. 

This financial strain underscores the shift from cash flow to capital gains in the property investment landscape. Up until recently, Australian property investors could line their pockets and pad their retirement plans with both cash flow and capital appreciation in the same property. In the current market, rising expenses and dwindling rent revenues have made capital appreciation the primary focus. Yet, escalating property values offer little relief to those struggling with mortgages, debt, and retirement savings.

Cash flow is crucial. It is needed for Australian property investors now, more than ever. Here are 7 reasons why:

1. Tax deductions and costs are up 58%.

As mentioned above, the Treasure tax report showed costs of maintaining and financing property interests have surged to $27.1 billion in 2023-24. This is up from $17.1 billion just three years ago. This is a staggering 58% increase, with investors feeling the burdens of added costs from higher interest rates and maintenance and seeking tax deductions to help soften the blow. 

2. Rents are rising faster than capital gains. 

For the first time in a decade, rent rises (8.3%) have outpaced capital gains (8.1%) without a corresponding fall in home values. This is an unusual surge, highlighting the growing disparity between property prices and rental incomes. Rising rents do not correlate to more income for investors. Rents going up is often a consequence of landlords covering the costs of increased taxes, maintenance, and interest rates – it’s a lose-lose situation. 

Those relying on capital appreciation are playing a long game with a steadfast view of the Australian property market. But as property prices rise, affordability becomes an issue. If the price of Australian property doubles in the next 10-15 years, as it follows the same trajectory of years past, there will be a very limited number of those willing and able to buy. Capital appreciation is entirely dependent on demand. Investors must look for balance, as the market is slowly pushing out buyers, and homeownership rates are falling among all age groups. 

3. Rental yields are dwindling.

Even though rental prices are skyrocketing, the average gross rental yield has fallen to just 3.7%, as higher costs are eating investor returns. When considering the average variable interest rate of 6.5% on new property investment loans, investors are caught in a precarious situation where the cost of borrowing eclipses potential returns. There are suburbs in Australia earning 10-12% yield, but you’d be in obscure locations where low demand keeps house prices and likely occupancy at low levels. Even the “hottest suburbs of 2024” average between 4-6% yield.  

4. More than 57% of portfolios are negatively geared.

Not surprisingly, 57.6% of investors reported their portfolios negatively geared, a significant leap from 30% in 2022. While losing money on their portfolio, they can offset these financial losses through tax benefits by lowering their taxable income from investments and employment. 

“It is unbelievable that the majority of property investors are losing money, not gaining,” says GPFG CEO Chad Egan. “Negative gearing as a tax benefit is not a viable strategy either because while you are lowering your taxes, you simply cannot gain wealth by losing money. A safer way for investing is finding cash-flow positive properties, then maximising your returns through deductions for depreciation, insurance and management.”  

5. Living costs rose faster than inflation last year.

Living costs for the average Australian increased 9.6% over the last year, a record that also outpaced the inflation rate. This is undoubtedly due to mortgage interest charges rising 40.3% over the year, easing from a peak of 91.6% in the June 2023 quarter. 

“Average Australians are feeling the squeeze for everyday and essential items. If your boss did not increase your salary by more than 10% last year, you had a pay cut,” says Chad. 

6. Hard times predicted for the next five years.

Forbes just reported that recovery won’t come for another five years, with a renowned economist from Deloitte noting that households were facing “an almost 9% drop in real household disposable income per capita”, with financial recovery “to take until almost the end of this decade.”

The ability to generate additional income through investments is now indispensable. Positive cash flow can provide a buffer against these escalating expenses, offering financial relief and stability.

7. Over $10 trillion is trapped in housing.

The cash flow versus capital growth imbalance is blindingly obvious when you consider that for years, Australia has been ranked as one of the wealthiest countries in the world. This is because the country’s residential market is valued at $10.3 trillion, with $8.1 trillion in equity. While Australians look wealthy on paper, they struggle to pay their mortgages and bills. 

The equity in their homes is a vast reservoir of untapped potential. Australians who are using equity release wisely are transforming dormant equity into active income sources. “We can release equity to spur cash flow, which can help in various ways to pay down debts, increase income and borrowing capacity and save for retirement,” says Chad. 

Cash Flow is King.

We can no longer look at the Australian property market with the same lenses as years past. The rental yields and capital growth are not as reliable, and investors are looking at their properties as not assets but liabilities. 

Cash flow positive properties can turn the tides, you just need professional guidance to find the right ones, which will not only provide you with cash flow in the immediate future, but help to build a solid wealth creation plan. Starting at a guaranteed 8% return, our Bali investments not only promise higher returns but also provide a strategic hedge against the financial pressures faced by everyday Australians. 

Discover money management investment secrets and more information on the ins and outs of Bali property investment by accessing our educational video content.

Head to our main website to get started: balipropertyinvestment.com.au