Purchasing properties for rental yields mean an investor should consider aspects such as location. When purchasing a property in a good location, you are more likely to enjoy substantially higher yields because you are able to pool a larger number of tenants, who are necessarily unable to pay exorbitant rents in high market areas. Experience has shown that the lower the price you pay for the property, the higher the potential yield you gain. Property experts will advise that before you purchase a property that you intend on renting out, it’ s vital you seek advice of a local real estate agent to establish what kind of rental income you can anticipate.
Rental Yield & Capital- Strong Long-term Buying a property as an investment is the best way to create wealth because you can generate returns on your investment while enjoying capital growth on the value of your property. Whilst it is possible to have both strong capital growth and a high rental yield, it is rare. These two variables tend to move in opposite directions to one another.
Choosing capital growth over rental yield seems a visible choice because that is what makes for a solid investment and the potential to generate long-term capital profit. Properties with strong appreciation usually provide a healthy capital balance; this then allows the investor to leverage the asset to expand their property portfolio.
Nonetheless, rental income on high capital growth properties tends to be relatively low meaning these properties almost always have a negative gear due to the number of expenses that need to be accounted for such as mortgage interests, rates and taxes, levies and maintenance that exceed the rental income. Properties with high rental yield on the other hand, usually provide positive cash reserves which can be used to pay down the loan.
However, the disadvantage is that when you want sell the property, the capital gain is likely to be substantially less than that of the strong capital growth properties.
“ Buying a property as an investment is the best way to create wealth.”
Closing Property Advice Both strategies provide for good overall returns and a profit but represent quite different strategies with different financial rewards and risks. It all depends on an individual’ s objective and investment needs which will best determined by a detailed financial analysis of one’ s financial goals investment goals.
20 DEC / JAN 2022 SA Real Estate Investor Magazine