Negative cashflow properties may sound like a less-than-ideal investment choice. But, just because they cost you money each year, that doesn't mean they can't be extremely rewarding in terms of capital growth. If you’re considering investing in such a property, it’s important to evaluate the potential returns against your own financial situation and consider whether or not this type of investment is right for you.
Take, for instance, an investment property worth $600,000 with an annual cashflow of negative $4,000. The deposit and purchasing costs of this property would be approximately $110,000 (this would be your initial investment). This property may appear to be risky at first glance due to the high capital investment and negative cashflow; however, if we assume a 6% capital growth rate, the potential capital gain in the first year will be $36,000.
What if you placed that $110,000 investment into a term deposit? Term deposits often have an interest rate of 4% or less, so that investment would only make a little over $4,000 interest in that first year.
So, while negative cashflow properties may not be suitable for everyone, it’s important to remember that they can still provide excellent returns in terms of capital growth—just make sure you understand and are comfortable with the risks involved. With the right research and due diligence, a negative cashflow property can open up some amazing opportunities for investors and help them to secure their financial future.
Happy investing!
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