Capital Growth vs Cash Flow: Is Cashflow King?

Capital Growth vs Cash Flow:
Is Cashflow King?
An Editorial By Phil Anderson · Tuesday July 26th

 

Capital Growth vs high yields and cashflow. Once upon a time this topic would firmly divide passionate investors into two camps, and just like Ford or Holden, Elvis or The Beatles, or more topically NSW or Queensland, you could not be convinced, for love nor money, of the merits the other possessed. The ideology was that when it came to property investing in Australia you could only chase one, but not the other. But for 25 years now I've been proving that this outdated way of thinking is not only completely unfounded, but also unnecessary, as there are quality investment properties in strong growth markets that can actually pay YOU to own THEM. Still don't believe me? Ok, let me show you.

It has been well documented that capital growth in Melbourne and Sydney has continued to move in an upwards direction. This has done more than just drive up property prices, however, as it has also driven rental yields in these cities even lower, making the holding experiences less desirable for investors looking to enter these markets today.

In fact, rental yields on residential properties in Sydney and Melbourne have
fallen to record lows.

Melbourne is currently the lowest yielding city market in Australia, averaging just 3% yield, and Sydney is 2nd last with 3.2% average city wide.

And still with these painfully obvious elements staring investors in the face, many are still choosing to ignore this out-of-pocket factor and falsely see it as an unavoidable cost of property investing.

However, we are seeing a tide of savvy investors who are beginning to take note, realising that cashflow plays a pivotal role by influencing their holding experience to the point where perhaps they do not need to just eat baked beans while waiting for capital growth to take hold. They can still attend the local cafe's, meet up with friends on the weekends and have an active social
life (something very important to Gen-Y), but still capitalise from the Australian property market.

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Essentially, they are proving that they can have their cake and their cashflow too.

Investors are now looking outside these two big cities for similar (and sometimes better) capital growth prospects where rental yields are much more attractive. We are seeing investors rapidly turning their attention towards quality markets featuring strong yields between 5% - 8%. Less informed investors might picture these sorts of yields as only being possible in remote regional locations that offer strong rental returns, but little chance of capital growth. This is not the case.

To be clear, I'm not talking about capital city markets where even the highest yields available, Hobart, at just over 5% would struggle to capture the attention of informed investors. And I'm also not talking about the mining areas, which still remain problematic given the end of the mining investment boom and decline in iron ore and coal prices.

EXAMPLE TOOWOOMBA

$3.1 billion of projects underway including a $1 billion solar electricity farm, $244 million worth of food-related industrial
facilities alongside the $1.7 billion New Hope coal mine at Acland.

I'm talking about large, regional locations with impactful and strategic infrastructure projects already in place. Areas that are creating jobs, improving lifestyle, and generating a more desirable living environment for high quality tenants.
Toowoomba is not alone. Strong 'cash flow positive' properties can be found in several markets that are tipped to be the best performing capital growth areas over the next 3 years.

 
These markets only appear on our radar if they feature solid investment into infrastructure, creating short and long term employment, strong population growth, plus an incredibly tight supply of rental properties that are in demand from quality tenants.

FAST FACT
HERVEY BAY

Forecasts predict the population in Hervey Bay will rise from the 43,000 today to 89,000 by 2021. That's a population explosion of 100% in 5 years.

 

Our criteria for selecting growth markets that will protect your hip pocket as well as target capital growth has been developed over the past 25 years. Over this time, this criteria has allowed us to boast a 100% success rate in picking growth markets right around Australia. To learn more about how we research and identify these markets for our clients please download our free State Of The Nation Report now.

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