Investing in property – capital growth or high yield?
Property investors need to ask “What’s more important when investing in property, capital growth or high yield?”
Goal 1 – to create wealth – you need Capital Growth
As an investor, personally I favor capital growth oriented assets. I want my investments to go up over time. My expectation is that an investment property should nearly double in value over a 10 to 15 year period, depending on market conditions.
If you are seeking capital growth, you need to be selective when choosing which property to buy. Not all property will grow in value. In fact, some may go down.
In the off the plan investment market, we commonly hear of people paying contract prices on purchase that the bank will not support when it comes to settlement. This can mean you cannot borrow enough money to settle the property. If you paid $700,000 off the plan and at settlement the bank values the property at $650,000 you will need to find an extra $50,000 of your own money to settle.
As professional property buyers, Buyer Solutions buyers agents have lists of attributes and features that we target in our investment properties to ensure that capital growth will occur if past trends remain reliable. If you can afford to buy some land, buy some land. That could mean a back yard on a villa unit or a house on its own block. But land is in finite supply. Supply and demand drive capital growth. Low supply, high demand means increased value.
Architectural style can also affect growth. Older properties with unique style can out perform the market for growth. So, for example Art Deco apartments have been proven performers when it comes to capital growth over the last 20 years in Melbourne.
Goal 2 – To create income – you need high rental returns and more specifically net yield
With bank interest quite low at the moment, some older investors are buying for yield or to manufacture income. They need to be aware that the capital growth may be lower, however the returns higher. Its a compromise some buyers are willing to make. If they are informed buyers, then this strategy too can be rewarding.
As real estate agents and specialist Buyers Agents, we cannot give financial advice. However, the simple approach above seems logical to me as a private property investor as well as a professional agent.
Our initial consultation with a property buyer may include input from their accountant, financial adviser and mortgage provider. This is wise as each client brief is unique.
If you are considering buying an investment property in Melbourne or Victoria, give us a call and we will share our experience of the market, hot spots to focus on and what and where to buy with you. I personally and professionally am proud that the properties I have bought for clients since becoming a buyers agent have performed well and have a strong track record of capital growth.
Buyers Advocate, Buyers Agent, Buying property, Investment, Investment property
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