Cashflow Positive Properties Don't Get Growth

An argument against cash flow positive properties is that they never go up in value. This is not true.

In 1984, you could probably have bought a 3-bedroom house in Canberra for $38,000.

A cash flow positive property in the sticks may have cost $20,000.

Canberra prices are currently about $300,000 for a 3-bedroom house and, according to the argument, the house in the sticks should still be $20,000. If you do a quick search through property ads, you will be hard-pressed to find a house this cheap.

If rents these days are $190 per week in the sticks, and if house prices were still $20,000, then your yield would be (50 weeks * $190 per week = $9,500) / $20,000 = 47.5%.

Why would anyone buy a house in Canberra with a current rental yield of 3% if they could get one yielding 47.5%? Even if the die-hards refused such a deal, the cash flow positive buyers would snap it up.

This drives prices up, and you don't see places with such huge yields. This means even cash flow positive places go up in value.

• Please Note:
• Figures in this article may be of a historic nature and may not reflect the circumstances at the time of posting.
• Posts in this blog should not be taken as investment advice, merely as views of a general nature.
• Individuals should seek qualified advice tailored to their specific circumstances from licensed advisors.