Capital Gain or Yield

We are often asked the question

“Isn’t it better to buy an existing house and land as an investment rather than a Unit or apartment?”

The answer lies in a study of the most powerful investment tools – COMPOUNDING.

This example shows Property 1 a house and land which was purchased because it had a high rental yield of 6% pa and offered the Investor an attractive cash flow return. This property will probably be in an area that offers a poor capital growth. We have used 6% in the example.  Property 2 was purchased with a focus on buying a quality asset in a high capital growth area 9%. We have used 5% as a rental yield in this example.

The table shows how whilst the higher yield is attractive initially. In the long term this short term gain comes at a huge cost.

After 10 years Property 2 with the growth focus out performs by approx. $1.5 million. The differential will increase over time. The quality of the location and the probability of capital gain is the focus of all property investments recommended by Calnan Flack.

yeild vs growth

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