Cash-flow challenge for investors

Skyrocketing rental costs have been unable to offset the impact of rate rises for investors, with cash-flow positive investment opportunities becoming harder to come by around the country.

Investors have little chance of finding a cash-flow positive proeprty in the current market, says Propertylogy founder Simon Pressley. Picture: NCA Newswire / Gaye Gerard

Skyrocketing rentals have been unable to offset the impact of rate rises for property investors, with cashflow-positive investment ­opportunities becoming harder to come by around the country.

New research from investor buyers agency Propertyology has found the annual out-of-pocket costs on a house purchased in the current market now averages $15,000, with only six of Aus­tralia’s 20 largest cities offering an “affordable” annual cashflow shortfall.

The agency’s founder and head of research, Simon Pressley, said landlords were facing a “the new normal”, with higher expenses from interest rates, insurance costs, city council charges, rental compliance costs and stamp ­duties unable to cancelled out by increased rental income.

“The new normal is $10,000 to $15,000 as a cashflow shortfall, or let’s call it $1000 per month,” Mr Pressley said.

 

“A person who already owned investment property three, four or five years ago, yes, they’ve enjoyed an increase in their annual rental income, but their expenses this calendar year will be a lot more than what it was in 2021.”

Of Australia’s top 20 cities, just six offered a four-figure annual cost shortfall, including Townsville at $5100, Mackay at $5600, Cairns at $7900 and Toowoomba $9600. The only capital cities considered affordable were Perth and Darwin at $8700 and $5500.

On the flip side, investors with a property in Sydney would be outlaying $35,151 each year on ­associated costs, with Parramatta commanding $48,000 out of pocket. Bowral in the NSW Southern Highlands ($34,994), Noosa on the Queensland Sunshine Coast ($30,408) and Melbourne ($25,836) were also considered expensive

Of the 140 Australian towns with a population of 15,000 or more, only West Australian mining towns Port Hedland, Karratha, Broome and Kalgoorlie were cashflow positive.

Propertyology founder Simon Pressley says investors should not make purchase decisions based solely on cash flow.

Managing director of data house SQM Research Louis Christopher urged caution in ­investing without research in areas with high yields as they were often riskier due to having “one-trick pony” economies.

“Karratha, for example, has historically a higher rental yield but a massive swing in the price of up to 60 per cent in the last downturn,” he said.

Mr Pressley believes cashflow should be a consideration when making an investment decision but not the deciding factor.

“People need to focus on the main objective and that’s cashflow when you retire, and the biggest amount of cash when you retire will come from the most capital growth you've achieved,” he said.

The total value of investor lending fell over the second half of last year, according to the latest Australian Bureau of Statistics data. Mr Christopher expects participation from the discretionary group to pick up in the second half of 2023 as conditions normalise.

Propertyology’s figures assume an investor is buying a median house in the current market with 10 per cent deposit, and a 5 per cent interest rate. It also expects median rental income is received 48 of 52 weeks in a year and has a general provision for associated fees.