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