Are you aspiring to invest in property?
If so, how do you actually know if a property is a good investment?
In this multi-part investment series, I’ll be sharing some of my knowledge with you.
All property investors have the same goal, build wealth.
There are two ways to get there – rental income or capital growth. The best choice is to find a property that gives you both. But what if you had to choose between one of them, how would you do it?
To help us, here’s a scenario.
Let’s say you have identified two properties to invest in.
Both properties cost $2 million, you’re planning to collect rental income and then hold for at least 3 years (because selling before then would incur Seller Stamp Duty charges)
Property A has a strong rental yield of 3% and a lower capital growth of 1%.
While Property B is the opposite.
Which makes more sense to invest in? (Refer to Figure 1 below)
Figure 1: Comparison between two properties to decide between rental income or capital growth
To help us decide, let’s look at the total profit generated from the rental income and sale price at different time points.
At the end of the 3rd year, B would give you $5k more than A. That’s pretty comparable in my opinion. If you’re wanting rental pocket money and plan to sell in 3 years, you might want to choose A.
By the 5th year, the difference is $16k. The gap seems to be widening now.
After 10 years, B would now be worth $80k more than A.
If you’re able to hold a property for the longer term, B might be a better option. A higher capital growth rate will have a more powerful effect on prices in the long run. That’s the magic of compounding.
So Property A or B?
It ultimately depends on your needs, preferences, holding power and exit plan.
Clarify your goals first in order to decide on your game plan!
If you wish to strategise your property game plan, I’m offering a no-obligation free consultation so you can learn what the best opportunities are. As a real estate consultant, I listen to understand your specific needs, give you my expert advice, and serve you with my 100% commitment to make your property journey a success.
Don’t hesitate to contact me at 88316965 today!
Get In touch.
