Ok, I realise that this will probably be open to a lot of debate but here goes….
Whilst doing some reading, some property books really advocate capital gains over high rental yields.
eg. a property with higher capital growth (eg 10%)will eventually get higher rent (eg. 5% yield) than a lower capital growth property (eg. 5%) with high rental yields (eg. 10%).
I understand that initial positive cashflows will allow you to supplement your income quicker, but will they continue to outpace inflation in the long term and if so, as much as high growth lower yield IPs?
I know that it is possible to get high growth and high yield but is this mainly a by product of the current boom? (besides if it was possible and easy most people would move into hi yield IPs)
I currently live in a rural area and although the prices have gone through the roof, I seriously question the longevity as there isn’t the jobs growth here to support it.
I’m up for any thoughts you might have.
Thanks Josh
Hi Josh[
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First,keep on reading and participating in discussion on this and other chat rooms.It is a great way to learn.
With regards to positive versus negative gearing both methods are relevant in a properly balanced portfolio.
I am listing in point form the differences between the two strategies.Negative
-Must be growth orientated
-Usually higher priced
-Lower rental returns <5%
-Need to be backed up by cash flow or income
-Need to accelerate equity growth quickly
-Careful research & selection needed
-Will flatten out in time
-Usually residential properties in good locations
-Low risk
-Will produce tax creditsPositive
-Produces income
-Usually lower priced residential or 2nd hand residential property
-Usually low growth <3%
-Higher rental returns >6-15%
-Help produce income needed to subsidise high growth properties
-Will eventually grow
-Can fall in value in poor times
-Can include semi residential & commercial properties
-Higher risk
-Income TaxableIt is currently harder to get high yeilds with both as housing affordability is at its lowest level since June 1996.
It is important to get as high a yeild as you can to offset the effects of projected rises in interest rates.
It is also important to study migration into or out of areas as this affects yeilds thru supply and demand.
I hope I have been able to answer your questions simply as many other factors can influence the market forces affecting property investing.Regards
Bryce Inglis
[email protected]
http://www.ipal.com.auThanks for the info Bryce.
I figured that as with most things there is a place for each in the portfolio.
One question though is that in the long term if the high capital growth property will eventualy have higher rental yields than the initialy high yielding property, is that desirable? I mean you might struggle a bit more initially but later on a small yield on a high price is more than a high yield on a little.
Thanks Josh
That is true Josh,
However, the main thing about +cf properties is the certainty, you are almost certain of earning passive income from these properties, the ones that are held for capital gains you are never certain if the capital gains you expect will occur.
And while you wait for the appreciation you have to source the investment out of your own income.Fudge111[8D]
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