Buying for capital growth is a strategy based on purchasing properties that will have above average growth over the long term. They are generally expensive and located in “sexy” – as in it sounds great to tell your friends you own a property in that suburb – well known and established areas. The rental yield or return on these properties is, in most cases, very low when compared to the price paid to acquire them. These properties are generally heavily negatively geared, meaning that the expenses associated with having the investment property (loan interest, maintenance, rates) far exceed the rental income derived from it. This makes it difficult for the everyday investor to accumulate more than one or two of these types of properties at any one time.
If you were only ever going to buy one property, you would buy for capital growth – no doubt about it. But successful property investment should be part of a wealth creation strategy – not just purchasing one property in isolation. To create financial independence for your future, the key is to accumulate as many properties as you can comfortably afford before retirement. When you retire, the rental income generated from each property becomes your ongoing disposable income.
Our solution – buy for both
There is a time and a place for both of the above strategies. When an investor is heavily negatively geared after three or four properties, it may be appropriate to look at cash flow positive properties to balance their portfolio. And likewise, when an investor is heavily positively geared, capital growth properties may be the solution.
The key, however, to expediting the expansion of your portfolio is to buy for both. Especially when you are in the early stages of property investing, ie: up to three properties. Real wealth and success in property investment is not derived from income but through long term appreciation and the ability to leverage each asset to buy further property, provided you have the financial capacity to do so.
Finding that integral combination of above average rental yields, good capital growth and great tax deductions, like depreciation, results in the property being affordable and safe over the long term.
If this sounds like something for you, get in touch with us for a complimentary consultation to review your current property investment portfolio or to discuss how you can start building a diversified portfolio of your own.
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