Hi,
I’m just putting together some information for the redesigned website and I thought that I would pose this question to the community to generate some discussion.
Here goes:
It’s generally accepted that the idea behind property investing is to make a profit. Having said that there are two generally accepted ways of making money in property – the first is through capital appreciation and the second is through positive income returns.
So bearing in mind the outcome of the both is the same (ie. to make money), does it really matter which one you focus on?
What do you think?
Bye
Steve McKnight
Edited by – [email protected] on 17/10/2002 5:59:30 PM
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi Steve,
although a very new player, my humble opinion is that it truly depends on your goals. By that I mean is it a ‘short term immediate gratification’ kind of thing, or is it a patience long term security’ type thing.
Option A entails generating that lovely positive income we all know and love, which enables us to go and do more of whatever we’re hoping to do. Be that financing more property, buying a nice car, quitting work to spend more time with your family, and so on.
Option B entails the careful selection of growth properties and tennants that will grow in capital/equity over a longer time period (10+ years) that will finance retirement and also bring in income, but slightly less over the early years.
That is a general idea, and one that is my interpretation for sure, there’s still much I have to learn about it all, but there you go.
Does it matter? Only to the individual and their goals.
Me? I want to try and find a nice balance of both. I’m going to try wrapping first to finance some bigger better more likely to grow type properties, as well as some ‘right here right now’ money for me and my new family.
Cheers
MattI have to agree that your goals change at different times, and so your strategy may well change too.
We started out in capital gain mode, and the property we bought 3 years ago close to Melbourne has grown a lot, giving us equity to use for other things. I’ve now taken that equity to use for deposits on wrap properties, because right now our focus is on cashflow.
Further down the track, when the cashflow is huge, I may well switch back to looking at capital growth again – or maybe not!!
In the end, everyone is different, and we all have to find the strategy that suits us at that time in our lives.Keep smiling
Felicity
Hi Guys, I think it really depends on where you’re at financially at the time. In the early days, my mindset tells me it makes sense to have cashflow first as it’s generally “guaranteed”, and it increases your servicability for further loans. Keep in mind I didn’t have a lot of money when I started so I had to enter at a level I could afford. I couldn’t afford to keep topping up a loan.
It’s very difficult for a cashflow strategy to outperform a well selected capital growth strategy, however the risk is high and the lifestyle is low while you’re waiting for the property to hopefully appreciate. Keep in mind also, the numbers on paper may look the same but your lifestlye options are completely different with each respectively.
Selecting properties that are “guaranteed” to appreciate(if there is such a thing in either strategy), normally means hitting the very close CBD territory which closes most people out considering the prices.
Ideally a mixed strategy of cashflow properties paying the shortfall of the negatively geared property(experiencing strong growth) gives a diversified portfolio, allowing you to increase your Asset wealth, while also allowing you to enjoy a little lifestyle if you want along the way.
I was made redundant, and it’s the cashflow strategy that saved us and allowed us to continue to live. If I only had equity wealth, I would have found it very difficult to redraw this money (not on LOC) as not having a job meant I didn’t have an income and the banks wouldn’t let me. Now that would be frustrating, having paper wealth and still having to live lean.
Risk, strategy and lifestyle questions for all of us will give us the answers that are correct for each of us individually.
As always, it’s only a view to consider, looking forward to others.
Remember, life’s about Family, Fun and Finance (probably in that order).
Mike
Director
http://www.PositiveCashflow.com.au
“Positive Cashflow for a Positive LIFESTYLE”
because
“Life’s too short to be Negative”“does it really matter which one you focus on?”
It properly depends on your situation.
If you go for capital appreciation you usually need some level of gearing (before tax). New properties or renovations. Tax advantages.
If you go for positive income (before tax) there is no gearing. Older properties, small if any tax advantages.
A mix of both may be best.
As your capital appreciation strategy progresses you will eventually end up with some of the properties becoming positive (before tax), finally getting back some of that money you out laid to keep the thing going. In the end, best of both worlds?
As your positive strategy progresses you will end up with even more income than you started with. Those holidays get better every year.
So does it really matter which one you focus on? It properly comes down to how long you are prepared to wait before getting a positive income, after claming back your losses.
That’s my 2c worth…
Regards
Ross.
If you do what you can do, you’ll make a living.
If you do the best you can, you’ll make a fortune.Hi Steve
I know people that have done well with either strategy so my two bobs worth is ” no it doesnt matter” with one simple caveat – know what your risks are and manager them appropriately.
ta
Rolf
Hi
Capital Growth and Cashflow are great investments and both work well. However the most important thing to do is to have a plan to follow and guide you. When you concentrate on something and follow your plan, do your due diligence, success should follow.
Regards
DeeHi Steve,
I think it is best to focus on cashflow. Without the cash the servicability struggles with the bank, making it difficult to borrow money to buy more property. Over time if you leverage into more property with a solid cashflow neutral or positive basis the long term capital growth will also be your rewards.
Also the mind games that can begin to torment high level borrowers relying on there job to pay for their investment can be taken out of play knowing that the tenant and the taxman will share the responsibilty to pay for your property.Best wishes
Normy
Hi Steve,
I think it very much depends on the individual and their wealth creation plans. For us, we would like to have enough passive income to be able to leave full time work and live a life far fuller in the things we prefer to do. To be able to do this we will have to have enough cashflow each month to be able to sustain us. That is our first goal. After achieveing this we intend to build up a wealth base that can multiply itself over and over again, putting us in an even better position financially. Captial appreciation would probably be the best option to be able to achieve this. I guess what I am trying to illustrate is that a persons focus may change over time depending on their goals.
Just a couple of thoughts,
Flea.
Gimme cashflow anyday…..
If someone were to show me two properties and say to me
” Here you go: choose ONLY 1 of these 2 properties. This one here
will give you cash in your pocket each week starting now and that one
will take your money each week but it will be worth more in 5yrs than the other, which will you choose?”Do I really need to think about this? hehehehe
Let me think… that property will GIVE me money each week in my
pocket starting from when I get it and the other will
TAKE my money each week from when I get it…Unless I’ve lost my brain I’ll take the property
which will GIVE ME MONEY EACH WEEK…..
Now I get it:That property Gives me money.
The other Takes my money.
One Gives, one takes. One gives, one takes. One gives, one takes.
Gimme money. Do you like giving away your money?
What do I conclude?
Give me the property that pays me NOW, week in & week out.
Wow, everyone is sooo right in what they are saying!!!
And so they always will be, as investing of any form, in any vehicle, is entirely personal. Everybody invests with their own goals in mind which are a direct reflection of their level of comfort. Each and every one of us has our own comfort zones and as such we all choose to either invest within these or, as many of us do, we expand the parameters of our comfort zones.
That said some people r comfortable with funding an investment property with a cap. gains focus, while others look to create cashflow. Why?
Because of our experience, knowledge and environment.
I add environment because quite often our comfort zones r influenced by our immediate environment.
example, i live in Hobart, and therefore a major factor influencing my decision to look for cashflow over capital gains is directly related to the lack of steady capital growth in the investment playground at my front door!!!
So i guess the answer to the question is not straight forward.
Personally i think a combination of both is the property investors highest aim.
eg. We have 2 units we purchased for $73k each(inclusive of closing costs) which currently have a positive cashflow of approx. $20/wk each (although living in one at moment) and in the current market we would be able to sell them within two weeks for about $105k each!!!
to conclude i choose cashflow over capital growth but will never miss an opportunity to cash in on both, hence wrapping fits the bill perfectly as i can lock in whatever cap. gain i can negotiate into the deal AT PURCHASE as well as gaining another stream of positive cashflow!! Love it… and excited as i am well on the way to starting my wrap porfolio!!Cheers
Michael
“”Every day, in every way, I’m getting better and better.” – Emile Coue
The topic ‘A question open for community discussion’ is closed to new replies.
