Income Resource Club > Property > Cash Flow vs Growth
Positive Cash Flow vs Growth Strategy
Positive Cash Flow Properties
Properties with low capital growth of 3-6% and a higher rental return of 7-10% fit into this category.
Advantages:
- Positive or neutral cash flow
- Ability to pay down principal with the excess cashflow and obtain more equity for future investment
- Usually a small entry price which makes it easier to get into the market
- Low price equates to lower stamp duty & land tax
- Rise in demand for high yield properties can cause occasional large jumps in equity
- You are in a better position with money in your pocket
- It is easier to obtain a full-document loan
Disadvantages:
- Capital growth over the long term is usually lower
- Increased income may result in higher tax payments
- Regional and outer suburbs can be quite sensitive to economic cycles
- Low-doc and no-doc loans are harder to obtain for some regional properties
- Lower leverage leads to a reduce return on investment
- Potentially higher outgoings on maintenance and increased vacancy rates due to location and social economics
For further information on Positive Cash Flow Strategies, please visit:
Growth Properties
Properties with a higher capital growth profile of 7-12% and a lower rental return of 2-5% fit into this category.
Advantages:
- Tax benefits of negative gearing and having delayed Capital Gains Tax (CGT) position
- Increase in equity can be made available to invest further
- Capital growth over the long term is more consistant
- Well established areas are usually not affected as serverly by economic and interest rate cycles
- It is easier to obtain low-doc or no-doc loans
- High leverage available
Disadvantages:
- Can be exposed to higher stamp duty & land tax charges
- With a standard mortgage and high leverage you will usually have negative cash flow
- Are usually more expensive than cash flow properties which can be a potential entry hurdle for people starting out
- As your portfolio grows it becomes increasing difficult to obtain lower interest rate and full-doc loan mortgages
- There is no guarantee of capital growth every year
For further information on Capital Growth Strategies, please visit:
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