Capital Growth or Cash Flow?

One of the most common questions property investors ask is: should I prioritise capital growth or cash flow?

You might picture yourself buying a property with a high yield and kicking your feet up as the rental income flows in. That sure sounds appealing. But is it the best way to achieve your wealth goals?

The answer always comes down to your individual circumstance and objectives. However, in most cases our advice is that capital growth is king. 

Capital growth is where the big bucks is

Depending on the location, property can double in value in 10-15 years. Buying and holding property can almost guarantee success. 

It’s important to consider that high yield properties will generally grow at a slower rate. For example, a house in a mining town might see excellent cash flow to start with, but the capital growth is risky. If the mining activity packs up, the demand for houses decreases and so do property prices. 

On the other hand, a property in a major city might have a lower yield, but is much more likely to double its value.

How to win in the short term

Commonly capital growth is seen as the long term strategy, while cash flow is all about the short term benefits.

This is simply not true. Capital growth isn’t just about the long term and can provide direct returns which will allow you to grow your portfolio faster. 

As your property increases in value, this releases more capital that can get to work for you. Not only can you manage the mortgage repayments comfortably, you also get the benefit of compounding equity. This provides a built-in financial buffer and allows you to purchase another property quicker.

What strategy is best for you?

Once you’ve reached retirement age your goals will change and an income stream will become the focus to ensure a comfortable retirement. But the only way to secure that income stream is to have first focused on capital growth.

Capital growth is the key to achieving wealth goals. To find out more about how this could work for your individual circumstance, book a discovery call now.