How to identify cash flow-positive properties

Dubbing it the holy trinity of real estate investing, Mr McGrath advised investors to focus on three core factors: “cash flow-positive properties in high-growth areas with value-add potential”.

When asked by host Phil Tarrant what makes up a cash flow-positive property, Mr McGrath explained that these properties produce more income than they cost to manage or operate, for example, those with high rental return.

“Some people would talk about covers their mortgage. We like to consider, does it cover everything? So, we’re talking about net positive cash flow. Now, that’s obviously going to be dependent on the property, the location and the rates, but it’s good to factor in all of those things,” he said.

“What you really want is, you want to buy an asset, which is going to put money into your bank account every day, week, month, year, whatever it may be. And is going to cover all of its own operating expenses and plus some ... it’s pretty simple.”

Mr McGrath said despite the simplicity, the strategy is sometimes met with confusion.

“Funnily enough, when I first told my parents about this concept of positive cash flow property becoming much more common now that people are talking about it, they looked at me really confused. They said, ‘Well, you can’t make money on property’. ‘Yeah, you can’. ‘OK, what do you mean positive cash flow property?’” he said.

“They genuinely had no idea and there was a great macrocosm, I guess, of a huge sub-sector of Australian society that most people don’t understand that A. That you can get that or B. That you can get that whilst getting capital growth, because that’s the other thing. Some people will think ‘I can get positive cash flow, but then I won’t get any growth’.

“This is kind of the process that I set out to disprove because I sort of thought, ‘If you can get cash flow and growth, awesome. If you can get those two factors, you’re going to be able to essentially grow an exponential portfolio. But then how do you safeguard it? OK, value added strategies.”

To listen to the full webcast featuring Glenn 'Goose' McGrath, click here.