Hey guys Ryan and Toby here from onproperty.com.au and today I'm answering your questions.
Today I'm going to be talking about whether or not you should go after a high yield properties
first or if you should go after high capital growth properties first.
Thanks for tuning in, I appreciate everyone that is sending in your questions, I guarantee
that I will answer your question in a video if you send one through but it's just going
to take time to get there because I've got about 30 or 40 questions that I'm going through.
Today's question is the second question from Maria; we answered the first one in yesterday's
episode which was about dual occupancy properties in Brisbane.
So today the question is, "I've noticed that a high yield property usually has lower capital
growth.
Should we go for high yield first or aim for high growth first?"
Now, I would like to know more details about the high yield properties that you have looked
at, why you assume that they have lower capital growth.
But I think the fact of the matter isn't, it is quite well established that a lot of
the positive cash flow properties out there don't have the high capital growth associated
with negatively geared properties.
We look at the Australian market as a whole.
There are way more negatively geared properties, so it's much easier for someone to say what
I can find negatively geared property that's going to deliver high capital growth.
Now negative gearing doesn't guarantee capital growth, there are so many people who invest
in negatively geared properties and don't experience the capital growth that they want.
Their property goes backwards, it stays stagnant or it moves slowly but people just don't seem
to look at that and the fact that the market is made up of a lot of negatively geared properties
that aren't really growing.
But then obviously there are pockets and they're highly negatively geared and growing really
fast and there are pockets of positive cash flow that aren't growing at all.
But then in that mix you do have positive cash flow properties in areas that are growing
but it is very difficult to find out those particular areas.
So in terms of the question, "should we go for high yield first or aim for high growth
first?"
The answer is it depends on your situation, depends on your financial goals and also depends
on how you're doing financially at the moment and what your plan is to move forward towards
financial freedom or whatever goal it may be.
If you're on an extremely low income and you're just kind of scraping by you just save your
deposit or you're getting it as a gift, well maybe you can't invest in a negatively geared
property and you need to go after high yield whether or not it's going to generate growth
or not because you couldn't afford to make the repayments yourself.
So you needed to be positively geared so that someone else is making those repayments or
you may be in a situation where you're earning $400,000 a year you are paying 40-odd% in
tax, whatever that highest tax bracket is 46% or something like that and you want to
save some tax and get that growth and so you can save these deposits really quickly.
You can get the growth that you want and you can get a tax offsets as well and so the situation
looks so different for those different types of people.
So I think instead of asking either or, I would try and find both and rather than just
looking for a property that positive cash flow that's in an area that's growing I would
try and hone my research skills to find an area that I'm pretty happy with and I think
that will grow in value at least will remain fairly steady from an economic standpoint
and a population standpoint.
So find the area but know that within that area that there are positive cash flow properties
to be found and I have talked about this I can't remember which episode it was but another
relative question talking about a similar sort of thing.
Basically I would narrow it down, find a good suburb or a couple good suburbs and then I
would get really granular with my research and look at all the properties available in
those suburbs.
What I would be looking for is a property that I can add value to.
Most people go into the market and they just want the market to go up they want to make
money by the market going up.
It's the same as people investing in the stock market and they just wanted to go up in value.
They don't want to do anything to make that business grow because really in the stock
market you don't have any power.
But the thing I love about property is that you can have that power to make change and
to improve your property.
Now that maybe through renovations or that maybe through better marketing so your property
rents for a higher price.
It may be through subdivisions or dual occupancy or something like that it may just be a little
spruce up or something.
But I would look for a property where there was something that I could do that would add
value because that way I'm not relying on the markets.
So I'm finding an area that I don't think is going to plummet, I think things are going
to stay steady or grow.
Then I'm doing things to add value and also getting positive cash flow at the same time.
So most humans try and cancel things out.
We do either its positive cash flow or either its high capital growth.
We can't have your cake and eat it too, but what if we could.
It would just require you to be more of an active investor and to do some pretty serious
research.
So Maria I hope that helps answer your question.
Yes there are more positive cash flow properties in areas that aren't that crash hot.
Yes there are negatively geared properties that are going to shoot up in value.
But they're also positive cash flow properties in good areas and there's also a lot of negatively
geared properties in areas that aren't going to grow.
So I would look for if it was me, look for a good area with positive cash flow property
or neutral that I could add value to.
Another benefit of being able to add value is not only can you get that equity, you can
get extra rent so you get a higher rental yield in the end.
So I hope that has helped your quick answer a question.
If you're listing today and you want to ask me or my cute little cat Toby, okay it's my
son's soft toy, if you want to ask a question then just email me ryan@onproperty.com.au
or go to onproperty.com.au/contact.
So until tomorrow remember that your long term success is only achieved one day at a
time.