Cash Flow vs Capital Growth
There has been much debate over which investment strategy is the best when it comes to purchasing a property.
The cash flow strategy involves identifying properties with a high rental yield. The objective is to receive more income than the total amount of your property’s outgoing expenses. This usually means that the owner will not be out of pocket and the extra money left over can be used for other purposes.
On the other hand, the capital growth strategy’s objective is to buy a property in an area with a projection for growth. The aim is for these properties to increase in value over the long term so that when they are sold, the increase in value will far outweigh the original costs associated with purchasing each of the properties. Sometimes these types of properties may not receive a high rental yield and require the investor to pay out more in expenses than income in the short term.
If you are looking to purchase multiple properties using any of these strategies remember that:
- It takes a very high amount of cash flow over many years to pay down a mortgage to have sufficient equity to purchase again; and
- You will require a lot of surplus income to service the ever increasing debt.
If possible, it may be better for you to find a property in which you can achieve the right balance of a good cash flow and good growth. However, there will be times in your life where one aspect may be more important to you than the other. Therefore, the most suitable option for you will be dependent on what you would like to achieve.
If you require any further information or advice in relation to investment strategies, please contact our team of financial planners at The Quinn Group on (02) 9223 9166 or submit an online enquiry form today.