With rising interest rates, it is obvious that positive cash flow properties will become more scarce. Buying into a positively geared properties has the key advantage, apart from having a positive cash flow, is its ability to shield the investor from the ups and downs of the property market. When the economy or the property market is soft, a cash flow positive investment property does not add additional burden to the investor because it is more than paying for itself.
A combination of the following factors can achieve a positively geared outcome for the investor:
- Low interest rates. It is obviously easier to find positively geared properties in a situation where interest rates are low. However, it doesn’t necessarily mean that these type of properties will disappear altogether. The astute investor will need to make certain assumptions about where interest rates are trending in order to make informed decisions on whether to fix their interest rate on a mortgage in order to minimise the upward exposure on mortgage costs. Read accurately, a good interest rate strategy can turn properties with negative cash flow to positive cash flow even in rising interest rate regimes because the astute investor has fixed his/her mortgage cost base.
- Potential growth suburbs within capital cities. Every major city has suburbs which have gone through a process of transformation and gentrification. Picking these suburbs involve looking at neighbouring areas which have experienced good capital appreciation whilst property prices in the surrounding (growth) areas have yet to move with the market. As long as these surrounding areas have good public amenities with good access and are located strategically close to the CBD, they are more likely to experience similar growth in the future like their neighbouring areas did in the past.
- No land tax. A modest property which is within the threshold for land tax could potentially save the investor thousands of dollars each year.
- No strata levies. Some investors are more partial to buying landed property over apartment units for this reason. Imagine the amount of savings that can be made over the course of holding an investment property which is free from strata levies.
Among some selected areas identified by experts to experience good capital growth over the next five years and hence increase the chances of properties being positively geared and give investors an opportunity to refinance are:
- Chippendale and Darlington in Sydney, New South Wales
- Maidstone and Braybrook in Melbourne, Victoria
- Thebarton in Adelaide, South Australia
- Clontarf in Brisbane, Queensland
- Victoria Park in Perth, Western Australia
- Glebe in Hobart, Tasmania