In Part 2 of this three-part series, Damien and Jeremy move from theory into practice, using Market Matcher to search for genuinely cash-flow-positive markets, and testing several real-world examples to see how they hold up.
Searching for Cash Flow Positive Markets
Jeremy demonstrates a Market Matcher search filtered to houses only, Australia-wide, with a minimum gross rental yield of 7.9% (the threshold identified in Part 1 as the point needed for a genuinely cash-flow-neutral or positive outcome) and a statistical reliability score of 55 or higher. He notes he'd normally start closer to 65 for reliability, only relaxing it if too few matching markets appear, since the goal is to find genuine clusters of opportunity rather than a single isolated suburb.
The search returns a handful of matching markets concentrated mostly in Western Australia, with a few in Queensland, New South Wales, and South Australia, spanning a wide range of typical values (from around $245,000 to $670,000), generally tight vacancy rates, and yields well above the national average (several in the 8%+ range).
Example: A Mining Town Property
Jeremy walks through a specific property in Millars Well, Western Australia (near Karratha, in the Pilbara mining region), purchased for $525,000, renting for $900 a week, a yield that leaves the investor around $40 a week ahead in cash flow. The suburb's DSR Plus score sits around 55, roughly "balanced." Jeremy cautions against acting on this figure in isolation, stressing the importance of understanding cluster-level risk, in this case, the market's dependence on a single resources industry. If that specific industry experiences a downturn, the flow-on effect to rents and vacancy can be severe, and Jeremy suggests that an investor drawn purely to this kind of yield might, in some cases, be better off gaining direct exposure to the underlying mining company or commodity instead of real estate exposed to the same single-industry risk.
Example: An Unreliable Data Point
A second example, in Pallarenda, showed a headline yield of 13.3% in the raw data, but Jeremy found this was based on very few actual rental transactions, several outlier listings renting for as much as $2,000 a week, skewing the average. Once adjusted to reflect properties that were both genuinely selling and renting in a comparable range, the true yield was closer to 4.7%, essentially an average figure once the anomaly was removed. This suburb's statistical reliability score sat at 57, on the lower side, which Jeremy uses as a cautionary example of why a single striking metric (like an extremely high yield) needs to be cross-checked rather than taken at face value, particularly in thinly traded markets.
Example: A Unit in Idalia (Townsville)
Jeremy highlights a unit in Idalia, purchased new in 2012 for $289,000, now worth slightly less around 12 years later ($263,000), while currently renting for $400 a week (a 7.9% yield). Despite the attractive-looking yield, Jeremy stresses this is a clear example of new-property and unit-specific underperformance: after factoring in council rates and a notably high body corporate fee ($5,600 annually on a sub-$300,000 property), the property still costs around $80 a week to hold, despite the seemingly strong rent. Without that rental income, the return on investment would be outright negative. His broader message: an investor holding a unit purely for its cash flow, without genuine capital growth, should seriously consider reallocating to a better-performing market rather than holding indefinitely simply because the yield feels comfortable, unless personal lifestyle reasons (such as genuinely wanting to live in that specific complex) are the primary motivation rather than financial return.
An Alternative for Cash Flow: Index Funds
Jeremy models an alternative approach for investors who prioritise cash flow: splitting a $120,000 sum (the same deposit amount used in Part 1's property example) evenly across three ASX-listed index funds, A200 (top 200 Australian companies), a geared Australian index fund, and VGS (broader international developed-market exposure), from January 2020 to around October 2024. Over that roughly five-year period, this produced an estimated return on investment of around 12.6%, combining approximately 7% capital growth and 5.7% in dividends, with income available immediately (since no negative gearing or cash flow shortfall is involved), unlike a negatively geared property.
Jeremy stresses this isn't necessarily a better strategy overall (leveraged property still offers a stronger return in his modelling), but a genuinely useful alternative for investors whose priority is immediate cash flow, such as those nearing retirement, without needing to take on property research, buyers agent costs, or a cash flow shortfall. He also notes the past 12 months alone showed a notably stronger 28% return for this same index fund mix (including a 41–47% return specifically from the geared fund), though cautions this reflects a particularly strong recent period rather than a reliable ongoing average, and mentions dollar-cost averaging (investing smaller amounts progressively over time) as a common approach some investors use instead of investing a lump sum at a single point in time.
Damien adds that his own share portfolio is weighted more heavily toward direct shares (around 70%) for capital growth, with a smaller allocation to index funds specifically to balance risk, illustrating that the right index fund versus direct share mix still depends on an investor's individual goals and stage of life.
Is Low Vacancy Plus Rental Growth the Real Key?
Reviewing rental growth data across the same high-yield markets identified earlier, Jeremy notes some showed wildly inconsistent 12-month rental growth (ranging from around -17% to +10% across different suburbs), a sign of thin rental markets where a small number of transactions can swing the data significantly. He explains that in a suburb with relatively few rental properties, even one property becoming vacant can shift the calculated vacancy rate dramatically, undermining the reliability of both the yield and rental growth figures for that market.
Jeremy's refined view: rather than chasing yield in isolation, investors seeking strong cash flow should specifically target markets combining a vacancy rate under 1% with a strong demand-to-supply ratio (he suggests above 60), since a genuinely low vacancy rate is what actually drives rental growth over time, potentially bringing a currently average-yielding property up to a stronger cash flow position in future, rather than relying on an already-high (and possibly unreliable) current yield figure. He notes that markets like the mining town example discussed earlier tend to have weaker underlying demand-to-supply scores precisely because they attract transient workers rather than genuine long-term owner-occupier demand, reducing the broader case for capital growth in those locations regardless of current yield.
Property or Index Funds? A Direct Comparison
Asked directly what he would personally choose between the mining town property example and the index fund portfolio if cash flow were the primary goal, Jeremy says he would lean toward the high-dividend share portfolio, citing better liquidity and more reliable, diversified income, rather than exposure to a single higher-risk, thinly-traded property market. Damien agrees, reinforcing that property's core strength lies in growth and leverage, not in being the most efficient vehicle for pure cash flow.
What About Just Holding Cash?
Damien raises a further comparison: simply holding cash in a high-interest savings account (citing around 5–6% interest as a benchmark, noting franking credit treatment on shares is a separate consideration worth discussing with an accountant). Jeremy agrees this avoids risk but sacrifices capital growth entirely, reinforcing that the right mix between cash, shares, and property ultimately comes down to balancing an investor's need for accessible funds against their appetite for growth, rather than defaulting to any single asset class.
Closing Thoughts
Jeremy's takeaway: don't follow yield blindly, since headline yield figures can be distorted by thin data, and even a genuinely strong yield doesn't guarantee a good outcome without also considering vacancy trends, demand-to-supply fundamentals, and the underlying reliability of the data itself. Both hosts preview Part 3, which will bring the series together with a broader discussion on balancing cash flow and growth directly, and invite listener questions and feedback via email or the comments section.