Every Australian property investor is faced with this decision, and it is one of the issues that many first-time investors discuss, whether to consider buying a property with strong future capital gains prospects or to achieve the higher current rental returns.
Yield is a very specific representation of a property but can change with expenses. There needs to be a balance between the two, but not necessarily a compromise. Investors neither want the weekly cost of investing in a property to be too high nor do they want to get some cash flow with a poor level of capital appreciation. However, some investors are strictly chasing yields in the hope of maximizing their regular income.
Rising capital is inversely related to rental income but can increase rental returns where possible. Here are a few ways to increase rental returns in Australia, furnishing a property, renting it out to multiple tenants, adding senior suites or using it as a holiday rental, decorating it, or adding useful amenities such as air conditioning, which can help raise the rent a bit.
When the rental market in the area plummeted, strong rents were useless. Likewise, strong capital growth is unsustainable when weekly expenditures are substantial, and capital growth will need to offset expenditures.
These relate to the short- and long-term goals of the investor, as well as the current financial situation. Every investor is different.
To invest in Australian property, should one consider buying a property with strong future capital gains prospects, or achieve the higher current rental returns?
The total return is the concept of annual capital appreciation and rental returns, which together create a new figure that determines how successful Australian property investment is. For example, a 6 percent annual rate of appreciation plus a 4 percent rate of return becomes a 10 percent total rate of return.
A sensible option for many people who never intend to sell their holdings is to choose high-yielding assets as the ultimate portfolio to maintain into retirement.