Everyone starts in the same place when it comes to property. They start from the beginning. They don’t wake up one morning with a portfolio of properties that are raking in a very nice passive income. They had to start from square one*. They made mistakes, they worried about each move, they fretted about tenants and maintenance and nest eggs.
They had to learn how to make money in property and once they understood that they then built a strategy, and once they had a strategy they built up their portfolios. So the starting point is HOW to make money in property, and there really are only two ways:
Rental Income and Capital Growth
This puts money in your pocket if you have a positively geared property. In general, a cash-flow positive property has a gross rental yield of 9% or above.
This is the value of the property. Historically property increases it’s value over time, this is easy to see when you come to sell a property for more than you bought it for. The key here is to either add value to the property and/or hold on to the property long enough to achieve those gains. Again, if you property’s value increases at 9% or more annually then you’ve got a good one.
So which is better?
Actually, if you find the right property you can have both! Finding a positively geared property that you can rent out, add value and sit on for a few years would allow you to reap the benefits of both. But these are very difficult to find and all investors are looking for these properties so competition is fierce. Usually these get snapped up by the experienced investors because they have developed an extensive network of people who can give them a heads up before other people are aware.
If you like the idea of income then finding positively geared property is the key. But, it’s easier said than done. It is not easy to find a positively geared property, you will have to put in a lot of time and energy to hunt down those properties. Often times the property will only become positively geared once the debt owning on the property has been paid off.
The other downside to a positively geared property, is that if you are making money on the property then you need to pay taxes on that income which makes it harder to build wealth.
The upside to capital growth is that you can make a lot of money, and this is often where investors make the bulk of their money. On the downside is that these properties take quite bit of money to hold on to, because you usually need to hold on to property for sometime to generate the big gains.
So which works better for you? Which system do you gravitate towards?
*(Ok, there are people who have inherited a nice portfolio, but they are few and far between.)