Capital Growth or better rental return?

[BayView]

Hi guys,

I am new to this so please bare with me. Im 25 years old and bought my first IP in sydney at the end of last yr. I bought my property for just on 500k but my rental return weekly is 400. I would like to purchase my next IP within the next year. I need advise on which state to purchase in next and also is it better to buy a property with more rental return or more capital growth? Any feedback will be extremely appreciated. Cheers

Depends on your available cashflow for servicing shortfall between rent and outgoings.

I've tried to buy our IP's based on good rental yields first, but with hopefully the right criteria behind the purchase for future capital growth.

Reason being; could never really afford to buy any of them, so the rental yield was important.

But looking back; the wealth we have achieved has been through the cap growth - not the cashflow..

I think the best strategy (for those on limited incomes) is to do the above as I've explained; but with the plan to convert the cap growth into other vehicles or IP strategies down the track, which will deliver premium cashflows - such as;

1. buy/subdiv/sell part or all, or
2. a business (I have done that and stuffed it up, so not the best option possibly), or
3. buy/reno/sell, or
4. even just straight selling down of some of the good cap growth IP's in your portfolio, and use the proceeds to buy more with large inputs of cash to make the cashflows much higher from day 1. Obviously this strategy will require a fair chunk of time in the market to achieve enough growth to then sell and reinvest.
5. franked dividend shares

 

[MIW]

Hi guys,

I am new to this so please bare with me. Im 25 years old and bought my first IP in sydney at the end of last yr. I bought my property for just on 500k but my rental return weekly is 400. I would like to purchase my next IP within the next year. I need advise on which state to purchase in next and also is it better to buy a property with more rental return or more capital growth? Any feedback will be extremely appreciated. Cheers

There are many debates on this forum just about that, most new investors ask that question, so read here and some books about it too.
Only then you will know what strategy you can choose!
For me, building wealth via IPs, I will always choose CG. Having CG will allow you to duplicate faster and get richer in long term (although many here will disagree with this!).
Of course you need to be able to service your IPs, but true wealth comes from growth, also remember any extra income generated would incur tax, whereas CG IP Capital Gains Tax is paid only when you sell (so you defer it yet you allow compound growth in the long term).
Read Michael Yardney's book, "How To Grow A Multi-Million Dollar Property Portfolio In Your Spare Time". He explains wonderfully the answers to these questions and many more!

 

[MTR]

I vote capital gains and cash flow you need both, and whatever it takes to achieve both

perhaps it could be selling down to improve cash flow, it could mean developing, it could mean jumping into a rising market short term. Though without cash flow you are stuffed, changed my mind I think that should be number 1, but growth is handy

Mtr

 

[see_change]

It's both .

Cash Flow helps you hold property while it Goes up in Value , but Capital growth makes you the money .

Assuming you buying reasonable areas ( in that catagory I would include places from Mt Druitt / Logan / ELizabeth up to Blue chips like Mosman ). Everything goes up at some stage in the cycle , but equally everything can go sideways for long periods or backwards at times

The following things will speed up your growth

Buying just before or at the start of a growth period -Timing
Buying Bargains under market price - Searching / Negotiating
Buying areas that are going to outperform the general market - gentrification / ethnicisation of certain areas .

As values go up , you get top up loans and use that for deposits to buy new properties.

You need good serviceability and back ups/ buffers . The less of these , the higher the risk .

You want places that are easy to rent .

Cliff

 

[skater]

It's both .

Cash Flow helps you hold property while it Goes up in Value , but Capital growth makes you the money .

Assuming you buying reasonable areas ( in that catagory I would include places from Mt Druitt / Logan / ELizabeth up to Blue chips like Mosman ). Everything goes up at some stage in the cycle , but equally everything can go sideways for long periods or backwards at times

And this is what a lot of people don't understand, is that you can get BOTH. You don't have to forego Capital Growth in order to have Cashflow. There are areas that give you BOTH.

They might not be sexy, sure, there might be a few problems in some areas, but you CAN buy something that covers all or most of your holding costs (depending on the cycle) while you wait for the CG to kick in.

The great thing about places like this, is that anyone can afford to buy in these areas. You don't need a $200k income to buy an ordinary house in an ordinary suburb (well, Sydney is silly at the moment, so please exclude that).

Any ordinary person, on an ordinary wage, can make a go of it, BUT they need to buy multiples and hold on until at least the next boom. It's not sexy, or complicated, but it IS doable.

 

[Rixter]

Any ordinary person, on an ordinary wage, can make a go of it, BUT they need to buy multiples and hold on until at least the next boom. It's not sexy, or complicated, but it IS doable.

That's it.

That's the key to creating real wealth.

You need to purchase multiple properties as fast as you can reasonably afford and then hold them for the long term to harvest their compounding CG.

It's the compounding CG that produces the wealth - not just one or two properties.

 

[LeoT]

The following things will speed up your growth

Buying just before or at the start of a growth period -Timing
Buying Bargains under market price - Searching / Negotiating
Buying areas that are going to outperform the general market - gentrification / ethnicisation of certain areas .



Cliff

Well said. Those points are SO important IMO. Many ppl just focus on buying a place and want growth asap. Its a big mistake in approach. The investors who are able to build wealth fastest understand that no matter what they buy it should be a) in the right part of a cycle, b) bought at a 'discount' price or BMV, and C) has scope to add value.

In my experience its the investors who approach every single buy with those points in mind that grow wealth fastest. Organic market growth should just be a bonus.

Leo