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kukulcan 发表于 2014-3-7 15:05 
google翻译还不如就贴原文好了
Capital Growth vs. Rental Return. Which makes a better investment property?
When it comes to property investment you’ll often hear two somewhat conflicting philosophies being bandied around. A common question beginning investors ask is – which is better?
Firstly there are the “Cash flow” followers; they suggest you should invest in real estate that has the capacity to generate high rental returns in an attempt to achieve positive cash flow. In other words, you want rental returns that are higher than your outgoings (including mortgage payments), leaving money in your pocket each month.
Then there’s the “Capital Growth “crew. Their favoured strategy is to invest for capital growth over cashflow. In other words, you need to buy property that produces above average increases in value over the long term.
In Australia, properties with higher capital growth usually have lower rental returns. In many regional centres and secondary locations you could achieve a high rental return on your investment property but, in general, you would get poor long-term capital growth.
So which type of property makes a better investment?
Which is better?
Clearly if both exist there is a place for both, so a better question would be what would suit you better as a property investment? And to answer this I really need to know what you want to achieve.
You see…property investment should be part of a wealth creation strategy, not just a purchase in isolation. Having said that there’s no doubt in my mind that if I had to choose between cashflow and capital growth, I would invest for capital growth every time.
I find more and more Australians are considering property investment as a way of building an asset base to one day replace your personal exertion income. This means your aim is to grow a large asset base and then enjoy the cash flow your “cash machine” churns out.
The few dollars a week your positive cash flow real estate might bring in, is not really going to make much difference to your lifestyle or your ability to acquire and service other, more desirable properties for your portfolio is it?
Fact is…you can’t save your way to wealth – especially on the measly after tax positive cash flow you can get in today’s property market. And when interest rates rise, an invetsment that is cash flow positive today may be cash flow negative tomorrow.
Wealth from real estate.
It’s important to understand that wealth from real estate is not derived from income, because residential properties are not high-yielding investments.
Real wealth is achieved through long-term capital appreciation and the ability to refinance to buy further properties. If you seek a short term fix with cashflow positive properties, you’ll struggle to grow a future cash machine from your property investments – it’s just that simple.
But here’s the trick….
You can’t ever turn a cash flow positive property into a high growth property, because of its geographical location. But you can achieve both high returns (cash flow) and capital growth by renovating or developing your high growth properties.
This will bring you a higher rent and extra depreciation allowances, which converts high growth, relatively low cash flow investments into high growth, strong cash flow properties.
This means you can get the best of both worlds.
Let’s look at this further.
In general in the major capital cities of Australia strong capital growth usually comes with a lower rental yield (the income earned over a year represented as a percentage of the value of the property). And in regional centres and many secondary locations investors can achieve a higher rental returns but get poor long term capital growth.
You see…it works a bit like this:
As the value of a property increases then, in general, its rental return decreases. This is of course unless the rent increases by the same proportion, which does not normally happen.
Rents eventually go up but these increases lag growth in value by a number of years. So the situation during any extended period of high capital growth as happens during real estate booms is that rental returns fall. This is just the way the property market works.
In the slower phases of the property cycle, when interest rates are rising and affordability of dwellings is decreasing, more potential home owners turn to renting properties. This is the stage of the cycle that rental growth starts to catch up.
So as you can see…when it comes to property investments there’s a bit of an inverse realationship between capital growth and yields.
Why go for cashflow?
I understand why investors would prefer cash flow. They feel they need the higher rental returns to pay their mortgage. They also believe they’ll have difficulty building an investment property portfolio because they can’t afford to service additional loans.
I guess that is why many beginning investors make the mistake of viewing their property investments as income driven.
Yet I still believe that it is strong capital growth that will be the key to a successful property investment. Even though the first year or two of holding an investment property can be challenging, remember that capital growth builds your equity much faster than loan re-payments and rental income ever will.
So I suggest you seek a balance between growth and income and view your investment as medium to long-term and be prepared to ride out the cycles.
The rental income needs to be high enough to help with your holding costs such as loan repayments, insurance and rates. But it should not be the main reason for investing, unless you are retired and are just looking for income to maintain your lifestyle.
Show me some numbers.
If you have any doubt about the importance of capital growth, the calculations in the table below should change your mind.
Imagine you bought a property worth $400,000 in a poor growth area delivering 5% capital growth and 10% gross rental return; in 20 years your property will be worth just over half a million dollars.
On the other hand, if you had purchased a property for $400,000 in a high capital growth area showing 10% per annum capital growth and only 5% rental return the property this property will be worth $2,691,000 at the end of the same period.
That is a massive difference in the final value of your investment property.
In the meantime the rentals on your property would have grown substantially in line with its capital growth and they would catch up to the rentals you would achieve on the first (high return) property.
The real bonus for the investor who bought the high growth property is that he will be able to access the extra equity in this property and borrow against it to buy further properties.
It is very hard to do this with properties that have high rental return but poor capital growth. It is very difficult to save that deposit to buy your next property?
Here’s a case study.
Let’s look at a real example of David who bought an investment property in a regional town in NSW a few years ago.
When he bought the property for $90,000 it returned $135 per week rental. David was thrilled with this; he has money in his pocket every week.
Over the last few years he had over $1,000 per year positive cash flow from his property. But after tax, he didn’t have much to put aside and he hasn’t been able to save for another deposit for his second property.
And as interest rates have increased recently, he has been getting less positive cash flow. He understands the benefits of investment property but just can’t get sufficient money together for his next investment.
Each year David asked the local agents what his property was worth hoping it has gone up in value enough that he can borrow against the extra equity.
But unfortunately each year he gets much the same answer. “It’s gone up 2% or 3%”.
So over the last 5 years, his property has only gone up slightly in value. It had not increased in value enough for David to borrow further funds for a deposit on a second investment property.
Imagine if David had bought a property that cost him $20-$25 per week, which he could easily have afforded from his salary. If he purchased in a good area with strong capital growth, his property would have gone up on average 50-60% in value over the last 5 years.
If he had bought it in some of the stronger growth suburbs of any of our capital cities it might even have doubled in value.
David would easily have had sufficient equity to purchase another investment, as was the case for his friends who bought properties in suburban Melbourne. Instead he has gone through most of a property cycle, had a small amount of surplus rental income but minimal growth. Unfortunately hee is still stuck with just one investment property.
Let’s look at it another way.
How much positive cash flow could David ever hope to achieve from his investment in a low growth region?
$20 or $25 per week? Let’s be generous and say $30 per week.
This would give him positive cash flow of say $1,500 each year, which ends up being less than $1,000 after tax. Not enough to change his life!
The bottom line.
I’ve already mentioned this, but it’s worth repeating.
If you want a top performing property investment buy one in a high growth area that will outperform the markets. Even if it’s a bit old and run down.
That’s because you can’t ever turn a cash flow positive property into a high growth property, because of its geographical location. But you can achieve both high returns (cash flow) and capital growth by renovating or developing your high growth properties.
This will bring you a higher rent and extra depreciation allowances, which converts your high growth, relatively low cash flow properties into high growth, strong cash flow real estate.
Yes you can get the best of both worlds in property investment!
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