Investing in real estate via an investment property is surely one of the most effective ways for Australians to build wealth. Property has historically increased in value in most markets in the long-term and gives buyers the added benefit of receiving a direct return from the rental income.
Property that yields high rental returns as well as capital growth can be hard to find. So many investors base their strategy around either long-term capital growth or a cash positive rental return.
If you’re not sure which path you should take, the following tips should help you decide which strategy best suits your goals.
High rental returns
Though they can pop up anywhere, good rental yields typically arise in regional or outer suburban areas. While such properties are less likely to be affected by market fluctuations, steady rental demands increase the likelihood of solid rental returns.
Properties with a high rental yield can make for a great investment with those looking to increase their day-to-day cash flow, however it pays to take note that it will be taxed as income, and this can minimise an owner’s net returns.
Investment property capital growth
Capital growth investors on the other hand are looking for properties that appreciate in value instead of focusing on the rental yield. While usually found anywhere, investors generally focus on capital cities or areas of growth and development.
The aim of this strategy is to sell the investment property for a profit after a certain number of years, leaving a healthy return on the original investment.
It can be a struggle for some investors to work through the first few years of ownership though, as the rental returns may yield little or no profit and mortgage repayments may need to be subsidised with other funds. Just be careful that you are not over committing or paying more than is affordable.
It is important to remember that while property investment is one of the safer options open to Australians, there is no guarantee that an investment property will continue to increase in value at the rate it has done in the past. Make sure you take time to research the market, always take a long-term view and speak to your mortgage broker to make sure that you have the most suitable finance in place.