Yield vs Capital Growth debate

[RightValue]

An interesting article on Property Investing from the NZ Herald


For the past few years, something has been bugging me about residential property investment.

I have long been a fan, but recently something has not been right with the way people have talked and written about it - or the way many have gone about buying rental property. .....

There has been a gradual shift in the past decade from investors searching for yield to people trying to play the cycle - in other words, from investment in property to speculation.



http://www.nzherald.co.nz/personal-finance/news/article.cfm?c_id=12&objectid=10592526

 

[The_Bludger]

There has been a gradual shift in the past decade from investors searching for yield to people trying to play the cycle - in other words, from investment in property to speculation.

Maybe because they started to take notice of what happened in the past four decades and saw a pattern. Not really a speculation in my view.

 

[Aaron Sice]

said it before, i'll say it again.

buy one low growth (or high growth if you can find it!) CF+ property to pay down the shortfall on the low yield property.

repeat ad infinitum then banks won't view you as "rent reliant". make the portfolio pay for itself.

 

[josko]

Maybe because they started to take notice of what happened in the past four decades and saw a pattern. Not really a speculation in my view.

he he, Couldn't have said it better. My experience with NZ realestate left me with the belief that they were decades behind in recognising there was even a property investment market at all!

Regards JO

 

[chilliaa]

An interesting article on Property Investing from the NZ Herald


For the past few years, something has been bugging me about residential property investment.

I have long been a fan, but recently something has not been right with the way people have talked and written about it - or the way many have gone about buying rental property. .....

There has been a gradual shift in the past decade from investors searching for yield to people trying to play the cycle - in other words, from investment in property to speculation.


http://www.nzherald.co.nz/personal-finance/news/article.cfm?c_id=12&objectid=10592526

Mate there as never been a shift from investors searching for yld to people trying to play the cycle. Some concentrate on yld, some on capital growth, always has been always will be.
My very first memories of property investing was in high school (late mid 80's) when my parents went to look at an apartment in south yarra as an investment proproperty. It was ylding (i cant remember net or gross i was only younge) only 5%.

 

[BayView]

This is not just a 'past decade' phenomenon.

People have been brainwashed into going for neg geared property with the promise of cap growth forever.

We as a Nation of gamblers (not me personally) are all too willing to follow that option, and are told on a daily basis in the various media that it is the norm to buy neg geared and wait for the cap growth.

Problem is, sometimes there is no or little growth in the first few years, the heavily neg geared masses struggle to hold the thing due to cashflow hardship, so sell up, take a nett loss and vow never to do it again.

Let's plow it all into the stuper-fund, the gallopers, or one of those hot-tip "blue chips" we hear about at work...

 

[sash]

Aaahhhh....the old chestnut.....balance is the answer!

 

[jrc]

From my point of view, if I want additional investments I need increased equity which can be in the form of capital growth or reducing debt.

From a SANF I like reducing debt (using the revenue from the investment). It also impresses the bank officers. As a result one can increase one's debt significantly. I now owe almost 20 times what I owed on my initial IP loan and I have paid off about 2/3rds of my original loan.

Having said that, my JOB income and family commitments mean that in order to increase my investments at a reasonable rate I need to have capital growth.

For CG I invest in what are perceived by locals at the time to be less than desirable areas or types of investment. The advantage of this is that you get a higher yield on the purchase price so that when perceptions change the value increases significantly more than a similar purchase in a neighbouring "better area".

To me it doesn't make sense to invest for a 3 or 4% gross yield - I want my tenant to fund my lifestyle not me to fund that of my tenant.

Similarly it doesn't make sense for me to put all my eggs in the mining basket or one small rural town, because even if the yields are great the risk of losing capital is also great.