This week’s tip is about rental yield vs capital growth. For a property investor, you would expect capital growth and positive cash flow in the ideal world. The reality is there’s normally a bit of a trade-off between the two and a bit of a balance, and it’s not one rule for every investor.
Some investors will be looking for stronger type cashflow type properties to fund their next purchase or not be a drain on the resources, and other clients might be happy with a property that’s going to cost them a bit more but going to grow better in capital growth.
Rental Yield
A cash flow or rental yield is easy to calculate by dividing the purchase price by the annual rent. I always do a property investment analysis for all my investor clients, which shows you the cash flow. This shows all the income coming into the property versus all the expenses going out, so we know exactly how much that property is paying us or costing us per week.
Capital Growth
Capital growth it’s a little bit more challenging to analyse or estimate because the reality is we don’t know how much that property is going to grow. There are some indicators, clues, information, and statistics that we can use to work that out.
When we are looking at capital growth, we are looking for areas where there’s population growth, where there are more buyers than sellers, and where the government and private enterprises are spending a lot on infrastructure.
Rental Yield vs Capital Growth
Just remember property investments generally are a long-term strategy. If you buy and hold with the market’s going up or down, as long as it’s positive cash flow, it’s not costing anything to hold on to that property.
Hope that’s helped and look forward to seeing you next Tuesday.
If you would like to have a discussion about your property needs click here to book a time in my calendar and I will give you a call.
Regards,
Geoff Tomkins
Buyers Advocate
PH: 0404 852 781
