Capital Growth vs. High Yielding Investment Decisions

Posted by Dominic Cavagnino

Investors are often torn between the two major aspects of investing in property, capital growth and high yields. Both result in financial gain, although which is more important can often leave investors in two minds.

High yields offer a short term source of income, in comparison to capital growth which can be more important for those willing to invest for the long term. The relationship between the two can be described as inverse to say the least. It often becomes a choice between the two, for example, data from realestate.com.au shows 2 bedroom apartments in Sydney and the relationship between growth and yields.

Sydney’s inner west suburbs: capital growth 9.4 per cent and a rental yield of 3.6 per cent
Sydney’s western suburbs: capital growth 6.4 per cent and a rental yield of 5.4 per cent

Often investors look for high yielding properties as they believe they will gain a faster profit, although the problem with this can be that there is no capital growth at the completion of your determined holding period.

The higher yield investment strategy is often the safer option as it provides you with a stable constant income to cover expenses such as interest and maintenance, although it results in a lower overall return on the investment. At the end of the day, it all comes down to an investor’s objectives and risk profile.

The importance of finding a balance between the two cannot be stressed enough. The key to investing is finding a property with enough yield to make it serviceable while chasing the capital growth. This is how to successfully build wealth through property investment.

For investors with multiple properties in their portfolio, having both high yielding properties as well as those with the focus on capital growth is important. This will assist investors in trying to achieve a balance between short term income and expenses. Overall both have their advantages and disadvantages and they outweigh each other, which is why they are the two most important aspects of property investment.

Blue Wealth advocates a capital growth strategy in preference to a high yielding strategy. High yields enable you to hold a property long enough to reap the benefits of capital growth.

Posted by Dominic Cavagnino, on 14th Apr 2015