There are many different types of investment strategies, but the right type for you depends on your goal. Two of the most common investment strategies you’ll encounter are the cash flow and capital growth strategies. Let’s look at these in greater detail.
The Cash Flow Strategy
This is a simple strategy that focuses on buying investment property that produces a higher rental yield than your expenses. The goal of this strategy is based on income supplement so that eventually you can retire and live on the income produced by your properties.
Problems with the Cash Flow Strategy
As with any form of investment, there are risks. The most common you’ll encounter with the cash flow strategy are as follows:
1. Capital outlay – The amount of capital needed to generate a positive cash flow on a property can be significant.
2. Property location – Properties that build a sound cash flow portfolio are typically found in regional areas or on the outskirts of major cities, which take longer to appreciate in capital value.
The Capital Growth Strategy
This is when you buy an investment property that will grow in capital value over the time of your ownership. This strategy will see you buy, and then, sell a property every 8 to 10-years, so that you can maximise capital appreciation and realise your goal of wealth creation.
Problems with the Capital Growth Strategy
Typical problems with this form of investment include the following:
1. Negative gearing – These properties are typically negatively geared, which means that the first few years of property ownership can be challenging.
2. Property location – Properties that generate strong capital growth are typically situated in metropolitan areas, closer to the inner city. These properties are often more expensive to buy.
Are you looking for an investment loan? Then contact eChoice, we can help find you the right home loan.
Written by eChoice