Finding the right investment property

If a property increases in value from the day you buy it until the day you sell it, that is called capital growth. There is always a chance that your property might decrease in value.

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In order to maximise your capital growth over the medium to long term, ideally you should consider buying a suitable property in an area at the bottom of a demand cycle and hold onto it long enough for demand to increase and for it to appreciate in value. Most property markets typically experience ‘cycles’ whereby demand and supply ebbs and flows, leading to increasing, decreasing or flat average capital growth over time.

Yield is the 'return' you receive on a property investment – most commonly in the form of rent you charge.

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Gross rental yield is calculated by totalling the income, or rent, you may receive from a property in a year and dividing it by the sale price, or value, of the property.

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While gross rental yield can be a useful general indicator, net rental yield tends to be a more accurate estimate of your likely return. This is when you factor in the other costs associated with your investment, including interest payable and other mortgage costs, taxes, rates and strata fees.

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Keep in mind, rental yields can fluctuate due to supply and demand and are not guaranteed by past performance.

Cash flow relates to the amount of money moving in and out of your investment.

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Some property investors seek out a positive cash flow strategy, which means the income generated from the property exceeds interest repayments and other outgoing costs. This is also often referred to as ‘positive gearing’.

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By contrast, negative gearing is when your rental returns are less than your outgoings. In this case, you may be able to claim these losses at tax time in the form of reduced taxable income.

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Now that you have a rough idea of exactly what you want to get out of property investment, it’s time to think about the type of property you want to buy and tenant you’d like to rent it out to.

A professional customzed investment strategy can minimize your risk and assist you to achieve your goal step by step.