Yield versus capital gains get it wrong & it will cost you

People investing in residential properties want to maximise their rental income (yield). Unfortunately for some investors yield dominates their decision making which can result in them purchasing a property that may have limited prospects for capital growth or even result in a loss.

Examples of areas where people striving for large rental returns has made them forget some fundamentals and has resulted in them making losses are buying in remote mining towns, rural locations where there are few property sales each year, new developments containing multiple apartments/townhouses and unique properties. Properties may be unique due to design or history, they may appeal to the buyer as a property for them but as an investment the market for a unique property may not be that strong when you come to sell.

Recently Property Observer News published their top 10 most heavily discounted properties in Australia. This list includes all of the above property types. Click here to see the list.

As the list shows all properties do make good investments. Investors must determine what blend of yield and capital gain they want to achieve. Prior to making a purchase successful investors fully research each property they are considering and this includes looking at aspects such as local facilities, access, transport, future development in area, demographics, talk to real estate agents (not necessarily the one selling the property you are looking at) and their finance broker.

Remember, when real estate agents refer to a “growth corridor” does not usually refer to capital gains growth but growth in properties available. Properties in ”growth corridors” usually have very slow if any capital growth for many years.

Property investing can be very rewarding but greed can result in no profit and potentially significant losses.