Three rules for holding onto property for life

Cash flow is the oxygen of investment; run out of it and it’s all over very quickly.

Understanding and managing cash flow is what brings many investors, from property to shares and everything in between, unstuck.

Here’s a sobering truth: the percentage of property investors owning multiple properties has hardly changed in the past 30 years, despite house prices increasing by more than tenfold.

Think about that for a minute. If property values have been doubling every decade or so, why aren’t more people building portfolios of five, six or even 10 properties?

The answer is: Because they sell too soon.

James Fitzgerald.

Most investors offload their properties within seven years of purchasing them – long before compounding growth can do its magic.

And the number one reason they sell? The property costs them too much to hold.

But the reality is that selling is the worst thing a property owner can do because it interrupts the process of compounding growth.

Let me share with you the three rules homeowners should follow to ensure their property costs as little as possible to hold and the process of compound growth is realised.

Borrow interest only

The difference between a $650,000 loan paying interest only and principal and interest is $600 per month or $7,200 per annum.

That’s not pocket change; that’s a safety net, and unless your family home is fully paid off, there’s no good reason to pay down investment debt. Once your home is sorted, you may consider paying principal and interest on one or two investment loans – but only if your cash flow comfortably allows it.

Treat property investing like a business. Minimise outgoings. Maximise runway.

iStock.

If the family home is paid off, we should then commit to paying principal and interest toward investment debt if our budgets can afford it. My rule is to typically pick just one or two loans to pay principal and interest on, once the family home is paid off.

Buy new, not old

The average Aussie pays $35,000 in tax per annum. Why not use some of that money to fund your investment?

The secret? Depreciation.

Depreciation is a paper loss that reduces your taxable income – without costing you a cent out of pocket. New properties offer the highest depreciation benefits, especially in the first 10 years when cash flow matters most.

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There are three golden rules of property investment. Generic image of Brisbane skyline.

One in two property investors buy older properties with little to no depreciation benefits, missing out on tens of thousands of extra cash flows that could be going toward funding their investments.

Stick to the middle of the market

Cash flow isn’t just about tax benefits and finance structures. One of the most underestimated impacts on cash flow is keeping the property rented.

Vacancy kills returns. Even two or three weeks a year without a tenant can turn a neutral-holding property into a money pit.

The solution to this? Stay in the Goldilocks zone – not too cheap, not too premium. Mid-market properties tend to attract the largest pool of reliable, long-term tenants. That’s where occupancy is highest and cash flow is most stable.

High-end rentals sit vacant longer. Low-end rentals often come with higher risk. The middle? It’s the sweet spot.

If you want to build real wealth through property, you need to hold long enough to let compounding do its work. That means getting cash flow right from day one.

Follow these three rules:

•Use interest-only loans (strategically)

•Buy new properties for maximum depreciation

•Stay in the middle of the rental market

Do that, along with pushing rents and holding the bank accountable, and you’ll give yourself the best shot to grow and keep growing wealth.

We don’t need to time the market, but we do need time in the market.

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