Decide whether you’re looking for cash flow or capital growth.
Much the same as the share market, the property market also moves through cycles and right now, property is certainly looking attractive to investors.
A significant undersupply of rental property across most markets has sent rentals soaring. Coupled with plummeting interest rates landlords should expect strong rental yields from their investments in the period ahead.
Considering current market conditions it is little wonder that a growing number of Australians are now thinking about making their move into property investment. However before diving in it’s important to consider your strategy and long term objectives, as this may influence what and where you buy.
There are two principal goals for investors – capital gain and cash flow. While it’s quite realistic to achieve both, the two should at least be considered separately and prioritised before making your move.
Capital gain refers to the growth in value of the investment and the subsequent return to the investor once the property is sold. Australian property has historically doubled in value every seven to 12 years, which may not be as dynamic as some other investments but it is generally considered one of the safest.
Alternatively, rather than liquidating your investment after a set period you may choose to generate ongoing rental income. While you may need to dip in to your own cash reserves in the early stages to repay the mortgage on the property there are tax benefits associated with this.
However as rentals continue to rise there may be a point where your property may become cash positive – delivering a steadily increasing monthly reserve. These extra funds can be channeled back into the property to drive down the principal debt or spent on other purposes.
Remember, it is essential to consider your long term goals before you buy and finance your investment. Some properties may offer better opportunities for capital gains while others may command higher rental values over the years.
It’s also important to discuss your funding options with your broker. Different loans and repayment structures will suit different strategies so it’s vital to find the right product and strategy that meets your needs.
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