What’s the difference between a rental property and an investment property and which is going to be a better investment?
In this episode we are going to look at what is a rental property and what is an investment property?
Let’s start by looking at a rental property. Pretty simply a rental property is a property that you purchase in order to rent out and to get a rental income from that property.
An investment property is generally a property that you purchase with the goal of making money. Now that can be as a rental property and you can rent it out but it can also be just holding the property with the goal of the market to going up and thus your property increasing in value.
It can be doing developments to that property or renovations or subdivisions. There are so many different facets or things that you can do to an investment property that sets it apart from just a regular rental property.
Every Rental Property Is An Investment Property
So technically speaking almost every rental property is actually an investment property. It’s the same that all yachts are boats but not all boats are yachts.
All rental properties are investment properties but not all investment properties are rental properties.
Cash Flow vs Capital Growth
I think really what people are trying to say when they’re asking me about this distinction is what’s better cash flow or capital growth?
Should I try and invest for a rental property with cash flow or invest in an investment property that’s going to generate capital growth?
They both have their benefits and their downside.
Cash flow can make money from day one. It can generate passive income and help you achieve financial freedom. It can also make money in all markets so whether the value of the property is going up, down, sideways, criss-cross it doesn’t actually really matter as long as you got that rental income coming in you are getting a return on investment.
But then capital growth properties can also be great because you usually leverage to purchase the property you are getting leverage growth. If the market goes up well then you can make a significant amount of money in a pretty short period of time.
With capital growth property there’s also the opportunity to build your portfolio quicker if the market works in your favour because the growth in your property is generating these large sums of money.
So both positive cash flow and capital growth can be a great way to invest. I hope that that has helped with the distinction of rental property versus investment property.
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