Growth OR Cashflow Properties?
Dilleen Property Group 2022
How To Decide?
Often people ask me, how do you decide between buying cash flow properties or growth properties? The short answer is, I would never decide between the two. I would choose both!
Although many investors say that you can’t achieve both, I am here to say that it is certainly possible with the right strategic formula.
The fundamentals of buying property come down to 3 factors: strong rental returns, strong capital growth, and buying under market value or comparable sales. Throughout building my own property portfolio, I have always stuck to these.
Unfortunately, most people believe you always have to decide between the two. However, I disagree with this.
What I’ve Done Owning Over 50 Properties
For example, I have over 50 properties, and this is exactly how I have built my property portfolio over the past decade - by focusing on both growth and cash flow. There are a lot of investors who have multiple properties and have managed to achieve both with the same strategic formula. In my opinion, you need both.
I have always bought properties for myself and clients within metro locations. Personally, I believe that all properties in metro locations will have growth over time, depending on the cycle of growth that you are investing in. For example, if you focus on the three major capital cities – Sydney, Melbourne and Brisbane, you can see that over the last 30 years they have had a minimum of 5% in capital growth. In saying this, some markets can vary, some going flat for 5 years before they start to push through the cycle.
My Advice Knowing What I Know Now
My advice is to stick to capital cities first. The bulk of the properties in my portfolio are located in Brisbane, Adelaide, Sydney, the Gold Coast and more recently Perth. I always make sure to diversify my property portfolio as well.
As I have built my portfolio to a large amount, I am able to sustain properties that may have a neutral or negative cash flow. If I was in a position where I had 3-4 properties and these properties were located in Sydney and Melbourne, for my next property I would look to diversify and look at markets such as Brisbane and Adelaide that have strong rental yields between 5% - 9%.
In the current shifting market and with the rise of interest rates it can become difficult to find properties with a positive cash flow. I tend to focus on finding properties that are either slightly positive, neutral or slightly negative while focusing heavily on the below-market value aspect to serve as a buffer and source of equity.
Ultimately, don’t choose between cash flow and growth properties, because you can have both.
Disclaimer: This is not intended as legal, financial, or investment advice and should not be construed or relied on as such. Before making any commitment of a legal or financial nature, you should seek advice from a qualified and registered legal practitioner or financial or investment adviser.
