Discount Properties vs. Cash Flow Positive Properties

There are many strategies to follow when buying property. Two of the well known strategies are the Treoc-way and the Hannes Dreyer-way. The Treoc investment strategy is to buy new build cluster townhouses at the bottom end of the market and the Hannes Dreyer-way is to buy cash flow positive properties. Please note that I have simplified the two strategy descriptions. It will take 2 posts to explain it in detail.

Other strategies will be to buy and flip or buy and hold. Some investors will only buy guest houses while others will only buy warehouses. You name it. Then there are the investors only buying flats or only buying freestanding houses. So you will find 10 property investors with 10 different investment strategies.

The two investment strategies that I want to discuss today are discounted property and cash flow positive property. These two investment strategies are my favourites. Discount properties will give you some of the biggest return on capital in the first year. In the following years you will get normal growth of the area. Discount property gives you the opportunity to buy and sell and make a return in the shortest space of time. I find this very handy to help my cash flow. And cash flow is very important in the property game. Most of the property investors selling in today’s market is because of cash flow problems.

To find discount properties are not always easy. The best place to look for discounted property is from motivated sellers. Motivated sellers are property owners that need to sell their properties fast and are willing to sell at a discount to make it possible.

I will buy a discounted property to sell in the next 6 months to 2 years. Discounted property is not necessary buy and hold property, because most of the profit is made in the first year, or when the property was bought. You actually bought your profit on the day you signed your OTP (offer to purchase). So you could have your property for sale the next day, if you don’t want to hold onto it.

The other great deal is cash flow positive property. This is a property that is bought with no monthly short fall after all expenses. So after paying the mortgage, levy, letting agent and other expenses you still have money left at the end of the month. These deals have become very scarce lately. This is because property values have increase significantly over the last 8 years and rental income could not keep up. Now that the property market is turning, rental income is increasing again, at long last.

You can ‘make’ a property cash flow positive by putting down a deposit when buying a property. To ‘make’ a property cash flow positive by pumping more cash into it, might not always get you the best return on investment. You could have used that cash on another property deal. So the opportunity cost could be high while your cash is turned into bricks and mortar. You are locking in your cash, because property is not a liquid investment. Watch your cash flow.

Buying a property at a discount, which is cash flow positive, must be the best deal around. This is the type of property I will buy and hold for the long term, say 10 years or forever. These properties are rare, but they do exist. So you need to find a motivated property seller with a high rental income to get that right. I will have to work harder to get more of those!

The property strategy that you chose is your choice. Even if you made the wrong decision to buy a certain property, property will always forgive you over time. In other words, you will always make your money back over time. To start on the right foot and buy discounted properties use SA Property Investments.