Property investment is one of the simplest way to generate personal wealth.
But with so many investment options and opinions how do you decide which strategy is the best for you?
In this article we take a look at cash flow, capital gains and a combination of the two.
Investing for cash flow means purchasing a property that will deliver rental returns that exceed your expenses – basically the property pays for itself and then some. This strategy is often referred to as positive gearing, as the rental income exceeds the outgoings. Having extra money in your pocket each week sounds nice, but considering you have to pay tax on those earnings, a cash-flow positive property may not be the best way to generate wealth. This strategy is also vulnerable to any interest rate increases, which will boost your mortgage repayments but not your income.
If you are investing for capital growth, you are not necessarily looking for a property that will generate a large rental income, but rather one that will increase in value over a long period of time. This allows you to build equity in a property and then leverage that to build a portfolio. In years to come, a large asset base spread will allow you to rely on the income generated by multiple properties. This strategy requires more discipline and patience, but the long-term returns generated will be worth it. If you do buy for capital growth, remember to budget for regular maintenance and repairs – it’s important to always keep your investment in good condition to maintain its value.
Cash flow and capital growth
There is now a third option for savvy investors who are looking for both cash flow and capital gains. With changes to planning laws across many states in Australia savvy investors now have a range of options to build or extend existing dwellings to include granny flats and dual occupancy.
These changes allow investors to buy in locations tipped for capital growth, while increasing the rental yield.
As the rules of the property market and the types of dwellings that people want to live in continue to change there are opportunities everywhere for investors to capitalize.
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