Friday, August 10, 2007

Rental Properties: Focus on Capital growth

Rental Properties: Focus on Capital growth I read this article during the week & felt that it posed interesting thoughts on how we should be viewing our investment properties.....
 
(source : Quartile Property Network, 3rd August 2007)
 
Probably the most common question asked of real estate agents by investors is "how much rent could we get for this property?"

A fair enough question, and one of the pieces of information we need to know to assess the merits of a particular property. Almost as important of course are the expenses that we pay out of the rent we receive. The problem is it is all too easy to get caught up in the gross rent (before expenses) or net rent (after expenses) equation, either in judging the investment merit of the property or as a comparison to other properties.

The reason this can be problematic is that it distracts us from the reason we are investing in the first place - to build our wealth or net worth through the increasing value of our property investments - capital growth.

This is certainly true for anybody that substantially borrows to purchase property.

The difference between high and modest rent will not have a dramatic effect on the ongoing holding cost, whereas the difference between strong and ordinary growth will have a MASSIVE effect on the result over time.

It must follow that growth is the number one consideration in the whole property investment equation.

In fact there is a correlation between rent and growth which further underlines the point. At least in general terms, it is usually the case that the higher the rental or income yield, the lower  the growth expectation and vice versa. So while a reasonable rent is important, it still ranks a very distant second in terms of the criteria to use to select the right property.

When you borrow money to buy investment property you are in it for the capital growth. Therefore entering the right market at the right time (as in a researched counter-cyclical strategy) as part of a long term outlook is the key to success.
Karen Raffen, Ceo
 
www.toop.com.au <http://www.toop.com.au>

 
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