Property Investments: Cash Flow or Capital Growth?

One of the top reasons why people venture in commercial investment is the opportunity for significant profit. That said, what is the best way to get richer faster? Most would argue that cash flow is the better option between the two, but is it best for you? Jufran Investments discusses the two top strategies that investors follow, cash flow and capital growth, to help you decide on your preferred option.

Cash Flow Investments

If your goal is to generate income and live off your commercial property in Sydney, a cash flow strategy may be right for you. Start by acquiring properties that deliver strong returns, and once you’ve reached your target cash flow, you have the option to stop working and live off your passive income.

The cash flow strategy is based on investing in properties with very high yields. With the income from the property itself covering the maintenance, interest, and costs necessary for its operations, an investor would have no pocket expense and may even have money left over. Low-value properties in small towns and high-risk properties in strategic locations like schools are ideal for this strategy. These property types often have slower capital growth trends, but in the long run, they can provide excess cash flow for the investor.

Aside from passive income, serviceability is one of the top reasons why cash flow investments are the ideal choice. When applying for any loan, one of the first questions the lender would ask is if you can pay it back within the given time. All your sources of income would get taken into account, and if you don’t have enough in the servicing calculators, your application will get rejected immediately.

Capital Growth Investments

A positive cash flow strategy is often favoured among investors, but other experts believe that a capital growth strategy is optimal. While the former focuses on generating passive income, the latter is based on acquiring properties that may have above average capital growth in the long run. These are often expensive properties found in hip and established areas. You can’t expect too much rental yield on these properties compared with the cash flow strategy, but they will be worth over the long term. Investors looking to follow the capital growth strategy should expect that the expenses associated with their property investment will exceed the rental income they derive from it, making it difficult to accumulate more than one of these properties in a lifetime.

For example, a three bedroom home with a value of $1.2 million would only yield around $800 a week. After you deduct maintenance and other associated costs, you would likely be left with nothing. While this doesn’t sound as appealing, if you are planning on buying only one property in your life, it’s best to do so for capital growth. After all, if your investment grows at a conservative 6% per annum, you will have far better returns than a cash flow property yielding $50 a week or $3,000 per annum.

Make the most of your property investment in Sydney by working with Jufran Investments. Our professional team can provide expert suggestions and guidance to help you maximise profits. Schedule a consultation today.