Choosing the Right Long Term Property Investment Strategy

Published 5 March 2020

Arguably the best way to get the most out of property investment is by investing for the long term. Although there are many long term property investment strategies, the common one is the buying and holding of property for capital growth or appreciation. Among the major cities such as Sydney, Melbourne, Brisbane, Perth and Adelaide returns tend to vary when it comes to yield and capital growth.

Buy and Hold For Capital Growth Strategy

The buy and hold for capital growth is a simple and secure strategy that entails buying property and holding onto it in the hope of capital growth and the perks that come with it. Capital growth or appreciation is the increase in the market price of an asset with the passage of time. For example, the current market price of a building could be $400,000 while its market price 10 years ago was $200,000. The building has effectively had a capital growth of $200,000. Although many investors bet on capital growth to be a certainty in life, the outlook of Australian house prices in the next decade remains contentious as ever.

Factors Affecting Capital Growth

There are a number of factors that can point to the direction of capital appreciation or capital depreciation. The location of property, the type of property, the time frame in consideration and the stage of the overall property cycle, all affect the likelihood of capital growth. The property cycle follows three distinct phases: the boom, the slump or downfall and the recovery. The caveat to this theory however is that this cycle only ensues in a free market where any person can buy and sell property within the possible government restrictions.

Scenarios That Demonstrate Capital Growth and Rental Returns

To know exactly the nature of capital growth and rental returns for residential dwellings throughout Australia, we asked the experts. Property Investments Consultants Group in Sydney crunched the numbers and gave us the following scenarios that vividly demonstrate capital growth and rental returns for residential dwellings throughout Australia.

Rental Returns

According to RP Data, weekly rents from July 2009 to June 2013 have increased by 27% while dwelling values have increased by a relatively smaller 10%. This phenomenon means that there was an improvement in rental yields. Gross rental yields rose from as low of 3.5% to 4.2%. The average gross yield on a capital city unit was 5%; from as low as 4.4%. If a property was rented out for $350 per week, it would now be rented at $444.5. This translates to additional cash flow amounting to $4,914 for the investor per year. It should be noted however that certain locations had varying averages over 5 and 10 year periods.

Long Term Capital Growth

The average home prices in Sydney rose by over 10% in 2013. This is a massive growth considering the performance of home prices in the prior years. The rise across all other capital cities in Australia was at a low 2.4% per annum in the 5 years to August 2012. This growth rate in home prices has been greatly subdued ever since the Global Financial Crisis (GFC) considering the growth rate prior to the GFC (between August 2002 and August 2007) was 8.4%. Investors have thus tended to rely more on strong rental yields than on capital growth.

It’s a Balancing Act Tipping the Scales

Capital growth or rental yields? The balance tips between capital growth and rental yields. The standard trend across property markets in the long term is that renters purchase when rents surge while residents rent when capital growth also surges.

For more on getting the right advice on property investing strategies contact us or speak to an expert just call 02 8006 9223.

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