Similar to the eternal battle of good versus evil, the opinions about Capital Growth versus High Yield when it comes to property investment rage on.
Both strategies have their Pros and Cons and, in reality, there is no blanket right or wrong answer. The key is that for any investor it will be based on their individual circumstances and their position or preference for either option and will change over time and possibly from property to property. Please also note that these two are not mutually exclusive and there are some investment properties which can have a healthy mix of the two.
Whilst Capital Growth is often seen as excellent measure of how well a particular investment has performed,it’s not the only thing to consider. There is no question that the fastest way to put equity into a property is through fast Capital Growth, this can be achieved by either buying at a below value price, a rising market, renovation or addition that results in an increase in value. The issue with Capital Growth is that it does not pay the mortgage, the rates, pay for repairs and other costs associated with owning the property. There are numerous people who are asset rich but cash poor and struggle to feed themselves week to week, even though they may be sitting on million dollar assets. It can be very difficult to access your Capital Growth wealth if it requires you to sell your home or principle source of income. You also can’t retire on Capital Growth.
This is where the famous adage of “Cash is King” starts to kick in. The benefit of good yield or return is that once you have covered your holding costs you can then do as you wish with the extra cash. Investment that provides a proper return will be the long term answer to sustained and continual growth. Once the principle is paid off, and the property is maintained, the income can be used to either enjoy or reinvest. Whilst you are in the growth phase, reinvestment would be the preferred option as the compounding effect of reinvested capital can be huge over the life of the investment. The best result would be to achieve suitable yield coupled with sustainable capital growth.
Realistically an investment that supplies good yield with Capital growth is often on the menu when I’m talking to clients. How to achieve this is the tricky part. There’s no point looking for the silver bullet as they just don’t exist. You need to create them or use multiple properties which have different jobs to do, it’s about creating a plan on how the property, the finance, the ownership structure, and property markets all work together to give you the result you are looking for. Contact Attribute Property today for