Updated: Nov 20
Over the past few decades Australians seem to be getting a steady dose of this advice.
"Invest in negatively geared property so you can offset your tax. Wait 30 years for the capital growth, then sell down half your portfolio to pay off the rest. You can then retire at the ripe old age of 70 and live happily ever after on the passive income."
Does this sound familiar? This is the exact advise I received in a seminar I attended about 5 years ago when my obsession with property first began.
I remember thinking to myself, if the end goal is positive cash flow, why not start there.
The other common advice we seem to get is, "make sure you save your money, if you put a little away each week from a young age, you will be rich by the time you retire.
But rather than putting your money into your bank account and receiving a whopping 1.5% interest per year, if you’re lucky!
Commercial Property investors are enjoying 4-8% NET returns each year and predictable capital growth.
Many people in Australia for example have remained sceptical when it comes to investing in Commercial Property, which is primarily for cash flow. But the recent events in 2020 have highlighted that having multiple streams of passive income outside of your active full time job,
can be somewhat of an insurance policy in times like these.
And if you really think about it, which carries more risk?
Relying on one source of active income? or having multiple streams of passive income that support your active full time job?
If you’re relying on one source of active income and you experience health issues, what then?
You’re health cover will only go so far.
So why do most Aussies choose to invest for Capital Growth over Cash flow or just save their money, when in America, investing for Cash flow is the most widely accepted strategy?
Fulltime professional investor and educator James Dawson says:
“This is because in Australia, negative gearing and capital growth has been banged into everyone over the years in the press and the media. Anyone talking about property is always talking about those two things. But essentially when you look at it, Capital growth or Cash flow are much the same thing.
If you’re putting money in the bank every month and are able to spend that money or reinvest it. That’s actually to my mind, a little bit better than waiting say, two or three years for some capital growth. But with Commercial Property you can get capital growth as well, it's just all about the selection”
According to Dawson, there are two main factors that set Commercial Property apart from other investment strategies.
High Positive Cash Flow
Commercial Property investors should always select property that returns high positive cash flow. The investment must make sense from day one and have good quality tenants in place.
The value of a Commercial Property is driven and determined by its rental income. This makes it easy to measure and predict the value of the property and what capital growth it is likely to be generated over a given number of years.
For example, according to Dawson, when you select a Commercial Property that has potential upsides that no one else has seen, and purchase that property using the current NET income to determine the value, you can get fantastic manufactured growth in a very short period of time.
The key is being able to identify a value add strategy or upside which triggers the capital growth.
Dawson has used this strategy time and time again which enabled him to retire from the rat race and live on positive cash flow from Commercial Property at just 37 years of age. That's 33 years before the average property advice most Australian's are receiving.
If you would like to learn more about how James Dawson successfully used Commercial Property to retire at an early age, he has a free webinar that you can access by clicking on the register button below.
Managing Director - Develop a Life
Host & Creator of The Commercial Property Show Australia