Capital Gains or Cash Flow Properties

When it comes to property investment, there's an ongoing debate between opting for higher cash flow properties (with higher rental yields) versus higher capital growth properties (also known as negative cash flow or negatively geared properties).

I strongly believe that capital growth offers the quickest path to building wealth. This is mainly because the capital gains are tax-free until the property is sold, allowing you to leverage those gains to acquire more properties.

Now, please see below some rough numbers I'd like to share with you but do remember to consult your personal advisors before making any decisions.

Cash Flow Properties:

• Often located in rural areas.

• More affordable with a lower entry point.

• Can offer rental yields of 6-10%.

• May achieve capital growth of 4-5%.

The appeal of these properties lies in their ability to generate consistent income, allowing you to acquire multiple properties without straining your cash flow after purchase.

However, the downside compared to capital growth-focused investments is that these properties tend to have limited value appreciation over time. This means that you may accumulate less equity, leading to the bank's reluctance to loan more money for additional property purchases. As a result, it could take longer to accumulate sufficient funds for your next deposit. Additionally, the rental income from these properties is taxable, so achieving substantial wealth or passive income might require owning a large portfolio of such properties.

Capital Growth Properties:

• Generally negatively geared properties.

• Mostly found near major cities.

• Typically offer rental yields of 3-5%.

• Typically offer capital gains of around 7-10%.

The main concern with these properties is that they can deplete your cash flow, limiting the number of properties you can hold. However, for high-income earners with surplus cash, this may not be an issue.

Moreover, you can utilize the capital gains to support the cash flow through refinancing. The primary objective of these properties is to increase in value, making them an excellent choice for wealth creation.