Tax and legal advice

Weighing up capital gains and rental yield

Harry Kalligeros 70x60When it comes to property investment, the big question is 'what is better – a good price, strong property growth, or high rental return?'  But what if you could have all three?

Blogger: Harry Kalligeros, owner, Properties Invest 

Property investing is growing as a popular Australian pastime with a huge growth of taxpayers owning an investment property in the last two decades.  So what makes a good bricks-and-mortar investment?  It's not about buying any old house or unit, that's for sure, and it's most certainly not about buying something you'd want to live in or even in an area that you necessarily find desirable.

There are two ways to measure your return on investment: Capital growth – the change in price over time and Rental yield – how much rent you're getting as a proportion of what you paid for the place.

People often talk about buying a property with high rental returns.  However, most of the professionals who buy property on behalf of investors would advise going for capital growth primarily, and then aim for a decent yield.  The argument is that just like money in the bank where the interest payments are left untouched, the house value rises having a compounding effect when the property market is going up.  Rent payments on the other hand are generally used to help pay interest payments, rates and so forth, and they don't compound.  A bit like if you had a bank account and kept withdrawing the interest payments, it might provide an income stream but you wouldn't get the benefits of growth on growth.

Generally people who favour high rental yields will be those investors who have less disposable income so that they can use the rent to pay the property's associated bills.  They have to have a higher rent earning property because that's how they can afford to own it in the first place.  People who have more spare cash are more likely to be able to go for a property that has higher price growth prospects but might attract lower rent.  Depending on how you structure the purchase of the property for tax purposes you can set yourself up to take advantage of either scenario.

Historically houses tend to grow in price faster than apartments but apartments tend to attract higher rent; though this is not always the case.  New apartments have greater tax benefits and tend to experience a greater level of growth over the initial years of investment than old or established apartments.  Recently we have experienced a strong level of growth for apartments in high demand areas of PerthPerth, TAS Perth, WA due to a shortfall of available apartments and the population expansion.  Yet in Melbourne apartments have struggled due to an oversupply and a downturn in demand for residential apartments in that city.

With the abundance of property investing information on the web it is becoming more competitive for mum and dad investors to find that elusive bargain.  That bargain is about getting a good combination of yield and growth and allowing property to do what it does through the passage of ownership: build your wealth.


About Harry Kalligeros
Harry Kalligeros 340x408

Harry is the Licensee and owner of Properties Invest Australia-wide, one of the fastest growing independently owned property investment specialist companies in Australia.

With over 21 years’ experience in the financial services industry coupled with 10 years in strategic property research, Harry has worked as a financial planner in large International Australian banks and boutique firms alike. He draws on his financial planning knowledge, passion and experience to help his clients grow their own wealth as they reduce their risk through personalised strategic property investing.

With our passion for property the Properties Invest Australia-wide team evolved out of the financial planning and accounting industries, out of a need for investors to have access to property investment research, analysis and professional strategists.

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  ["title"]=>
  string(72) "Mortgages in a tighter lending economy and why Brisbane is a good option"
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  ["introtext"]=>
  string(255) "

Tune in to the latest episode of Property Showcase, the podcast with the inside track on the products and businesses that will help turbocharge your portfolio, maximise returns and make your overall investment experience seamless and stress-free!

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To hear more about these services, make sure to tune in to this episode of Property Showcase!

 Make sure you never miss an episode by subscribing to us now on iTunes!

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Son Pham is the accredited Head of Mortgages at Rethink Financing\/Rethink Investing. He has over 6 years\u2019 experience writing loans, over 12 years in the wealth management industry working for the likes of CBA, AMP and private practice and he is also a licenced financial planner (AFSL 326450). He has multiple investment properties that are cash flow positive which help pay his mortgage on his home and fund his lifestyle.<\/p>\r\n

Son is able to write all types of residential and commercial property loans.<\/p>\r\n

In this episode of Property Showcase, head of mortgages at Rethink investing Son Pham joins host Tim Neary to unpack how an investor should approach getting a mortgage in place with banks tightening down on serviceability.<\/p>\r\n

Hear from\u00a0Son\u00a0about:\u00a0<\/p>\r\n

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  • The pitfalls that he has seen people get into<\/li>\r\n
  • Interest only loans and if that is the way to go<\/li>\r\n
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    Whether it\u2019s building a successful property portfolio or investing in one of their Development Funds, Open Corp can help you through every stage of your investment journey. The team has 40 property specialists who collectively have been involved in over $4 billion worth of property transactions and the acquisition of more than 8000 homes and investment properties.<\/p>\r\n

    In this episode of Property Showcase, director of investment services for Open Corp Michael Beresford,\u00a0joins\u00a0editor of Real Estate, Tim Neary to share why he disagrees that the cooling market means that the best times are behind us.<\/p>\r\n

    In this episode, hear from\u00a0Michael\u00a0about:\u00a0<\/p>\r\n

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    • Why Brisbane is a good investment option right now<\/li>\r\n
    • How he wants to help clients take advantage of the current market<\/li>\r\n
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Mortgages in a tighter lending economy and why Brisbane is a good option
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Will Magee has had ambitions to enter into the Australian property market for quite some time, but it has been more than just finances holding him back.  Having been granted permanent residency just two weeks ago, Will is wasting no time and is now in the process of signing papers and finding his first investment property.

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In this episode of the Smart Property Investment Show, Will joins host Phil Tarrant to share why he is purchasing his first property in partnership with his brother, discuss the complications that can arise from such a strategy, and unpack the ongoing plan for building a joint property portfolio with his brother.

Will will also share how they approached saving for their first property, why he is taking out the mortgage in his name exclusively, and share their savings plan for the year ahead.

If you like this episode, show your support by rating us or leaving a review on iTunes (The Smart Property Investment Show) and by following Smart Property Investment on social media: FacebookTwitter and LinkedIn.

If you have any questions about what you heard today, any topics of interest you have in mind, or if you’d like to lend your voice to the show, email [email protected] for more insights!

RELATED AREAS OF INTEREST:

From property in Australia to a ski lodge in Japan
Mortgage Trusts, an alternative first step for property investors
Should a real estate title be in one person’s name only?

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A property investment plan years in the making
object(stdClass)#1197 (52) {
  ["id"]=>
  string(5) "18287"
  ["title"]=>
  string(75) "Regional Victoria showing up Melbourne in price performance, new data finds"
  ["alias"]=>
  string(74) "regional-victoria-showing-up-melbourne-in-price-performance-new-data-finds"
  ["introtext"]=>
  string(139) "

Median house prices in regional Victoria outperformed that of Melbourne in the June quarter, the latest REIV figures reveal. 

" ["fulltext"]=> string(2323) "

Median house prices in the regions rose 4.0 per cent to $419,500 but in Melbourne they dipped by 0.6 of a percentage point to $840,000.

The result in Melbourne was due to a 0.8 of a percentage point fall in prices achieved at auction; this was despite a lift of 2.3 per cent in private sales.

Inner Melbourne suffered due to auction prices, where median prices fell by 4.9 per cent to $1,459,000 but it was middle Melbourne that was hardest hit, with a 5.4 per cent drop to $974,500.

Outer Melbourne had a good quarter with the median rising by 0.5 of a percentage point to $681,000.

Apartment prices in regional Victoria grew by 3.7 per cent to $304,500 while the metro media was up by 0.5 of a percentage point to $604,000.

REIV President Richard Simpson said that despite fewer sales, many sectors of the market were performing well.

“2017 was a bumper year and while the trendline has flattened, despite the fall in median house prices in the June quarter, median prices are still up this calendar year for both houses and units, in Melbourne and in the regions,” Mr Simpson said. 

In particular there was been strong growth in regional centres which is probably due to the first-home buyers’ concessions said Mr Simpsons.

“The first-home buyers’ concession has been a boon for regional areas. A new entrant to the property market buying a house at the regional median will pay no stamp duty, while a first home buyer of an apartment in Melbourne at the median price would pay stamp duty of nearly $25,000,” he said.

Mr Simpson said that more prospective buyers are looking towards regional Victoria which is also having an effect in Melbourne.

“Melbourne’s outer perimeter continues to grow. Small increases in the June quarter mean that the median prices for both houses and units have risen over 10.5 per cent from a year ago.

Mr Simpson said moving forward that vendors need more realistic expectations as the highs of 2017 are now over.

“Negative chatter about the future of the sector coupled with stronger lending controls by financial institutions has created some uncertainty and vendors need to be realistic with their price expectations,” Mr Simpson said.

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Regional Victoria showing up Melbourne in price performance, new data finds

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Weighing up capital gains and rental yield
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