CASH FLOW - CAPITAL GROWTHProviding Business tools for the Australian Building and Construction Industry to assist Developers, Builders, Owner Builders and Tradespeople
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Cash Flow – Capital Growth
Cash Flow vs Capital Growth is arguably the most debated topic when it comes to investing in property – while many are staunch followers of cash flow, others are firm devotees of capital growth.
Both strategies offer certain distinguished benefits but the real question that many ponder is – can you have both at the same time? A close look at both the strategies might just give us an answer.
The advocates of cash flow strategy suggest that property investments should be made only when the property in question has the ability to generate high returns in the form of rental income and it should be a positive cash flow property. In layman’s terms the property should generate enough revenue (rent) to pay your expenditure (mortgage).
The advocates of capital growth argue that property investments should be made with capital growth in mind. A property whose value increases significantly over a period of time is the best type of property to invest in. These properties usually have lower returns in the form of rent but have a higher capital growth.
Which one is better?
The answer to this question is that it could be either of them. It depends on your priorities. If your investment is aimed at wealth creation, capital growth is a better strategy. If you simply wish to obtain a surplus cash amount every week, cash flow is better. Capital growth is a wonderful wealth creation strategy that can help you make major makeovers to your lifestyle.
How about a little bit of both?
You can often achieve both with just a few minor tweaks in the property itself. One of the factors that might help is the geographical location. Geographical location can also help you convert a cash flow property into a high growth property.
Once you have invested in a capital growth property, you can easily reap the benefits of cash flow along with capital growth by conducting minor renovations or development works on your property.
A renovation or a development will provide you higher rental returns while giving you depreciation allowances which convert the property for high growth.