Securing a property in a location that yields a competitive rental income, and one that surpasses the costs of holding and maintaining your investment no doubt has its steady rewards.
But there are alternate property types to consider when wanting to secure a high performing asset, and as Scott O’Neill, director of Rethink Investing shares, it all comes down to considering the full breadth of real estate and property styles.
“What about a house and granny flat?” O’Neill proposes when sitting down with Yourmortgage.com.au editor Sarah Megginson to discuss how investors can strike the right balance between optimal cash flow and the backbone of capital growth when purchasing a property.
“You’re getting maybe $200 or $300 a week extra compared to your neighbour who doesn’t have a granny flat in the same suburb. So, that’s the difference, and that’s the [beneficial] cash flow I’m referring to,” he says.
O’Neill explains that it’s a journey to locating a property that will brew the right balance of cash flow and capital growth, and on some occasions sifting through the market “takes a lot of time”.
“You need both cash flow and capital growth prospects – that’s the answer,” O’Neill shares.
“One of the biggest things with that argument that cash flow doesn’t grow, that’s a general comment. They’re assuming you’re buying in a very terrible whirl [or] lowest socio-demographic area that’s got high yields and then the growth is [going to be] poor in there.”
Commercial property is also worth exploring for its clear benefits, one of which includes the weekly cash flow at times exceeding that of residential assets.
“Commercial [property] in that same suburb you might have a warehouse or a little dentist or an office space where you’re getting two or three times better cash flow in the same area,” O’Neill shares.
In the case that a property doesn’t harbour a good rental yield, O’Neill warns that if holding costs are substantial or maintenance needs to be done further down the track, investors can find themselves having to go out of their own pockets. “It’s not going to let you retire because you’ve got to pay money towards that,” O’Neill says.
“A lot of people transition out of those growth properties into high cash flow assets because that’s what you actually need in retirement,” he adds.
To learn more about the dynamics of cash flow and capital growth, including how to take your extra cash flow to the next level and whether it’s possible to settle into a lifestyle of financial freedom through cash flow properties alone, watch Scott O’Neill’s full interview above.