The growth you can achieve with property investment makes it a great asset class for most people. However, learning how to get that property portfolio to produce cash flow, making it easier to hold onto, can be a bit more challenging. That’s where the guidance of a buyer agency or buyers advocate can make a significant difference.
Fortunately, there’s a simple step that investors can take to set themselves up for the second stage of their investment journey.
Consider a scenario where, after spending a decade building a property portfolio, you now own three well-performing assets, acquired a few years apart. On paper, the numbers look good—your initial $2.7 million investment has increased to $4.3 million. However, despite this significant growth in equity, you find yourself still contributing out of pocket each month.
This is a common challenge for many property investors, especially if you’re buying high-quality assets in blue-chip locations. Despite the decent equity uplift on paper, the lack of cash flow raises the question of whether this investment approach is sustainable in the long term. However, with the help of a buyers agency, there are ways to convert that hard-earned equity into steady, reliable cash flow.
Here’s an example. Let’s assume your first property, purchased for $800,000, has doubled in value over the past ten years. You choose to sell it and, after accounting for costs, clear around $700,000. Instead of spending this cash, you use it as a deposit to acquire a $2 million commercial property.
Why shift to commercial? Unlike residential properties that may only yield around 5.5%, a solid commercial asset can offer a return closer to 8%. While this might not seem like a lot, the difference is significant when you break it down. While a residential property might generate $13,000 annually, a commercial property could provide as much as $70,000. This level of cash flow can have a significant impact on your financial situation and quality of life.
The additional cash flow can then be put towards paying down debt more aggressively. Over time, this creates a snowball effect—reduced debt leads to lower interest payments, freeing up even more cash to accelerate debt repayment. Ultimately, this approach can result in a steady income stream and a stronger financial position.
Of course, you also need to account for capital gains tax. Various strategies can help manage CGT, including paying it outright, refinancing other properties to cover it, or deferring it as long as possible to keep more of your capital working for you.
The key lesson here is that successful property investment involves more than simply accumulating assets. It’s about knowing when to shift strategies—from focusing on growth through residential properties to generating cash flow with commercial investments. A buyers advocate can guide you through this transition, ensuring you make the most of your equity to create the financial freedom and lifestyle you want from property.
If you find yourself with significant equity but minimal cash flow and have been in the market for a while, it may be time to consider commercial property.
Ultimately, it’s not the number of properties you own that defines your success but how effectively those properties are working for you.
