Marlborough Property Investors' Association

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Positive cash flow properties becoming more and more common

A cash flow positive property is one which enjoys a net gain based on the rental income being greater than costs associated with owning the property. These costs may include the expenses associated with purchase, legal/ management fees, rates, electricity and upkeep of the property. A cash flow positive property is often what many investors aspire towards, with their investment property actually generating a profit rather than recording a loss.

The current conditions are creating a market where positive cash flow properties are now becoming more common. Property values have fallen in many regions while at the same time rental some areas are showing increased rental rates and interest rates are falling.The combined effect is that rental yields are trending upwards.

During 2004-06 rental yields were eroded due to house and unit values increasing at a faster pace than rental rates. Since early 2007, when weekly rents started to increase at a faster rate than dwelling values, yields have been improving. On a gross basis rental yields across New Zealand are averaging 4.7% for both units and houses.

2008 has been a pivotal year for the NZ property market with a sustained drop in property values for the first time since 1998. This trend is continuing with QV’s January Residential Price Movement report showing that property values fell by 8.3% during the year. Most of the main centres are once again showing further declines in value compared to 12 months ago. The Auckland area has slipped back to -9.0%, Hamilton to -10.0%, and the Wellington area to -8.5%. Both Christchurch -8.8% and Dunedin -8.3% have also declined further.

Cash flow positive return suburbs across New Zealand

With confidence low, inflation high, some value declines having been recorded, more and more investors will be looking to purchase cash flow positive properties in order to reap the benefits of a return from their property and to also capitalise on future property value growth. With vacancy rates dropping, positive rental growth and value growth being minimal, it is anticipated that more and more properties will be moving into cash flow positive territory.

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