What's the right investment strategy now that we've moved to the next stage of the property cycle?
When it comes to property investing, you will often hear two conflicting philosophies.
Some say you should invest for capital growth, and others say you should invest for positive cash flow.
Now that we are in a period where capital growth is going to be lower, more investors are wondering if they should change their investment strategy and look for cash flow positive properties.
This is exactly what we discuss in today’s show.
The first half of the show we talk about finding the right investment strategy, and in the second half we talk about finding the right property.
So whether you’re a beginning investor or a seasoned pro, there’s something for you.
What’s the Right Property Investment Strategy for This New Phase of the Cycle:
- More beginning investors tend to invest in cash flow positive properties. On the other hand, successful investors - those who’ve built a substantial asset base grow their portfolio through leveraging the capital growth of their investments.
- While cash flow positive properties allow you to get short term income, they will never allow you to accumulate enough equity and assets to become financially free.
- The few extra dollars a week in cash flow that you might receive isn’t going to make a difference in your lifestyle, but the lack of capital growth is going to hamper your ability to get the deposit for your next property. And the lack of rental growth is going to hamper your ability to service more debts.
- When interest rates rise, and the will sooner rather than later, a cash flow positive property can become cash flow negative – an you lose out because you don’t have the cash flow and you don’t have the capital growth.
- Investors should focus on building their asset base. Asset growth first and then cash flow.
- You should only buy properties with a high land to asset ratio.
- You have to get your investment phases in the right order.
- The first phase is the accumulation phase. This is where you build your net worth and asset base. You can speed things up by manufacturing capital growth through renovations.
- The next phase is the transition phase. This is where you lower your loan-to-value ratio after you have built an asset base. Then eventually you can.
- Live off the cash machine of your investment property portfolio
- When you retire the majority of your assets will be the capital growth of your property.
- Setup the correct loan structures before you buy to cover shortfalls for two or three years.
- You need to invest in high quality “investment grade” properties.
The Big Difference Between Winners and Losers:
- Most successful investors realize that success is a mindset. People fall into two groups those who make excuses and those who don’t. Winners stop themselves from making excuses, and they get the job done.
The Right Property for This New Phase of the Cycle:
- We are now in for a period of lower growth for a number of years.
- There is no such thing as the perfect investment.
- Look for an investment that is strong and stable
- Strong means you’ll get capital appreciation at wealth producing rates of return.
- Stable means your asset won’t fluctuate in price much.
- Look for properties with
- steady cash flow.
- Liquidity either through selling or borrowing against the investment.
- Easy management.
- A hedge against inflation.
- An investment with good tax benefits.
- I’d take stability in my investments over liquidity.
- Put your money into a “how to” investment such as an established capital city property.
- Michael Yardney
- Rich Habits Poor Habits
- National Property & Economic Market Update Promo Code: Podcast
Some of our favourite show quotes:
“I tend to see more successful investors, those who’ve built a substantial asset base, grow their portfolio through leveraging the capital growth of their investments.” Michael Yardney
“If you buy in a low capital growth area, your rents won’t increase as much as properties bought in a high capital growth area.” Michael Yardney
“The few extra dollars a week in cash flow that you might receive isn’t going to make a difference in your lifestyle, but the lack of capital growth is going to hamper your ability to get the deposit for your next property. The lack of rental growth is going to hamper your ability to service more debts.” Michael Yardney
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