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Investment Property: Capital Growth Or Rental Yield?

When it comes to property investing, this is the most common and popular debate.

While one gives you increasing value on your capital over the long run, the other gives you cash in your pocket right now which increases your cash flow. Both have inherently better advantages over the other, depending on your circumstances.

In theory, it is possible to have both strong capital growth and high rental yield, but it is not common.

Invest in a high rental yield property for CASH IN HAND

Possessing a good rental yield means the rental income exceeds the costs of owning and maintaining the property, so the owner ends up with cash in hand.

Usually, this is a less risky investment strategy and the overall return in the long run (due to the lower capital growth) is not as great.

Thinking about investing in long-term CAPITAL GROWTH and not so much on rental income? 

Property investors always wish to generate decent returns on their investment.

Property values are driven up when there is a shortage of available properties and buyers are competing for those that are available. In other words, in good locations where people want to live.

Since properties in these areas cost more to purchase, rental yields may not cover the expenses of owning and maintaining the property, meaning the owner will have to pay additional funds. 

While this isn’t always the case, it is generally true that properties in good capital growth areas offer less rental yield because they are more expensive.

What is the best option for me?

Personal circumstances play a key role in any investment decision. Getting into the market with an income property may be more appealing for first-time homebuyers: the up-front costs may be lower, and a positive income property can alleviate expenses.

If investors want a property that will withstand market changes with more stability and provide a better long-term investment, then places with good capital growth might make more sense.

For balance in a portfolio, it might make sense to include some high yielding properties and use the surplus cash to cover net outgoings for low yielding properties.

In addition, there are costs related to property maintenance and repairs. For some investors, these fees may be surprising, so it’s worth considering how they could affect your rental yield.

Both strategies result in good overall returns and profit, but they represent very different strategies, with different financial rewards and risks.

For balance in a portfolio, it might make sense to include some high yielding properties and use the surplus cash to cover net outgoings for low yielding properties.

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