Should I Invest In High Rental Yield Or High Capital Growth Properties? (Ep213)
This question is the second question from Maria (I answered the first one in episode 212). She asked, “I noticed that a high yield property usually has lower capital growth. Should we go for high yield first or aim for high growth first?”
I think it is quite well established that many positive cash flow properties don’t have the high capital growth associated with negatively geared properties.
If we look at the Australian market as a whole there are more negatively geared properties so it’s easier for someone to find negatively geared property that will deliver high capital growth. However negative gearing doesn’t guarantee capital growth. There are people who invest in negatively geared properties and don’t experience the capital growth that they want. Their property goes backwards, stays stagnant or moves slowly.
In terms of Maria’s question of aiming for high yield vs. high growth the answer is: it depends. It depends on your situation, financial goals and on how you’re doing financially. If you’re on an extremely low income but manage to save your deposit or get it as a gift then you probably can’t invest in a negatively geared property. You would need to aim for high yield since you wouldn’t be able to make the payments yourself. On the other hand you could be in a situation where you earn $400,000 a year and pay 40% plus in tax. You would be able to save up the deposits so that you could see growth and get a tax offset as well.
Try to find both types of property.
Also start your search by looking into an area that you like that has indicators of stable economic and population growth. Once you find your area you can narrow your search to find a couple of good suburbs and then get specific and look at all the properties available in those suburbs.
Look for a property you could add value to.
I would look for a property that I could add value to. Most people go into the market and they just want the market to go up so they can make money. It’s the same as people investing in the stock market and then just expecting it to go up in value. They don’t want to (or can’t) do anything to make that business grow.
The thing I love about property is that you the power to change and improve your property. This could be through renovations or even better marketing so that your property rents for a higher price. I would look for a property where there was something that I could do that would add value instead of relying on the markets.
So it is possible to do BOTH positive cash flow and high capital growth. It would just require you to be an active investor and do serious research.
I hope that helps answer your question Maria. There are positive cash flow properties in good areas and there are a lot of negatively geared properties in areas that aren’t going to grow. Look for a good area with positive cash flow property or neutral property that you could add value to which could give you extra rent and a higher rental yield in the end.
Until tomorrow remember that your long term success is only achieved one day at a time.
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