It’s a question which is as old as the hills.
Should you invest for capital growth, or for cashflow?
And people have very strong opinions on this.
But the answer is … there’s no single answer!
(You knew I was going to say that, right?)
However, there’s a good answer.
And it solves one of the most common misconceptions there is about creating wealth and replacing your income through real estate.
First though, let’s be clear about the two positions.
Investing for capital growth is where you’re looking for the value of your house to go up. This means high growth rates, even if it means you’re heavily negatively geared.
Generally, the higher the growth, the lower the rental yields so chasing growth usually means you’re out of pocket more each month.
Capital growth investors typically invest in suburbs near major capital cities. They’re often high income earners who can afford to cover the shortfall, and benefit from the tax deductions.
Investing for cashflow on the other hand means chasing rental income from the start. This is the more attractive option if you need ongoing income or want to reduce the holding costs of your portfolio.
What they care about is how much positive cashflow they get each month, whether it’s $100, $500, $1,000 or more.
Often they’re investors on lower incomes who get immediate help from the extra cash.
Take A Guess.
What Do You Think I’m Going To Say Next?
You probably think I’m going to say it depends on your income and your goals.
You probably think everyone has an ideal position on the line between cashflow and capital growth.
And this will determine how far you should lean towards the capital growth or the cashflow side of the scale.
Only, I’m not going to say that at all.
I’m Going To Tell You Something Completely Different.
Smart investors don’t have a strong opinion on this whatsoever.
They think the whole argument is silly.
That’s because they start at a completely different place, as to the people who invest with us do.
(In a moment I’ll invite you to spend some time with us at no cost to show you what it’s all about.)
When you invest this way, you start with your goals.
What kind of life do you want to lead?
Do you want to retire early?
Do you want to be financially free so you can choose what to do, and when you do it?
Do you have big expensive tastes, or are you more modest?
And this leads us to the next question.
How Much Passive Income Do You Need To Get There?
Then you look at your financial situation today, and you work backwards to figure out the safest and fastest possible way to get you there.
When we do this with people like you, it tells us what properties you need to invest in first.
It also tells us when to switch to another type of property.
And that’s the whole point.
You don’t have an ‘ideal’ position on the growth/cashflow scale.
It changes as your situation changes.
You might not need high cashflow properties to begin with when you’re in an accumulation phase.
To achieve your goal of replacing your income, you’ll have times when you accumulate real estate by targeting capital growth.
Then there will be times when you turn this real estate into cashflow.
Make sense?
Simply targeting one strategy or the other and pig-headedly sticking to your position is crazy.
If you’re adamant you should only invest for capital growth, then guess what?
You’re going to end up negatively geared over your head.
Staring At The Ceiling In A Cold Sweat
And this means financial stress so bad that you’re living on credit cards, dodging unknown phone numbers (because they’re probably chasing bills) and staring up at the ceiling at night in a cold sweat knowing you’re one vacancy away from the whole thing falling apart.
It also means the banks are going to end up not lending you any more money anyway because you fail their assessment criteria.
And all that happens is you end up with a portfolio which is sucking up your cash, and you can’t move forward either.
On the other hand?
If you’re all-in on cashflow investing, it’s not much better.
You’ll probably end up with some cheap investments putting a few hundred, maybe a thousand or two in your pocket a month.
But without any capital growth to get your next investments, you’ll end up stuck anyway.
An extra thousands bucks a month is nice. But it’s not going to be enough to quit your job any time soon, is it?
You’ll regret having such short term thinking.
And you’ll hate watching other investors get ahead because you prioritised a few extra dollars over accumulating high growth assets.
My Recommendation? Use Both And Replace Your Income Sooner
The secret is knowing the difference between the two strategies, and coming up with a combination which is the best of both worlds.
Did you know, for example, that you can invest in a high growth property which is only slightly negatively geared?
And when you add the tax benefits in, you come close to, or even break even?
Did you know there are a number of clever financial strategies you can use which can improve your cashflow position, and allow you to invest in higher growth properties?
And did you also know that an experienced property expert can determine exactly what properties you should buy, and in what order, to make sure the banks never reject you?
So Let’s Find Out What’s Possible For You, And What That Would Look Like.
You’re invited to spend some time with on a Google Meet with one of our Senior Property Wealth Planners to show you what’s possible.
They’ll help determine your ability to replace your income by investing in real estate.
They’ll also map out an overview of what you should do, and when.
And of course answer any questions you have.
There’s no cost for this either.
We do it in the hopeful expectation that if you decide to invest, you’ll ask us how we can help you.
No obligation, no pressure.
First things first.
Enter your details below, and we’ll contact you to book in a time.
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