Before jumping into an investment investors need to know what they are getting into and what they are hoping to get out of an investment. The typical debate is between chasing capital gains or cash flow. When choosing what type of strategy to implement there are many different considerations but the end result is that the answer may be different balance for different people. Some of the things to consider are:
The difference in return between high yields vs. capital gains. Sit down and calculate what a high yield in a property would pay you in a year compared to what a high capital gain would result in. Don’t be emotional, look at numbers.
Safety should not be disregarded. Often high yields are available in markets that are less stable. Even if strong yields are achievable, could the market go backwards and cost more than the yield?
Your personal cash-flow. Capital gains can be incredibly lucrative but investors should know what a property is going to cost to hold while that gain is being achieved. Make sure we can afford to hold a property in the good days and the bad.
Tax is a big consideration. Most people building a portfolio are earning an income from their jobs as well so remember that any positive cash-flow will most likely be taxed at your income tax bracket.
Tax deductibility is also a big consideration. Not everybody is on the same tax bracket so when contemplating a strategy remember your tax rebate for holding a property may be more or less beneficial than somebody else.
Accessing equity. When we look to invest in our next investment the most common roadblock in growing is access to a deposit. This is a major draw card for a focus on capital gains.
Different people are going to lean toward different strategies. Make sure that you take the time to understand the numbers and how they may apply to your situation and expected goals.