What’s better: rental yield or capital growth?

Property investment usually focuses on capital growth for wealth creation: the increased value of the property between its purchase and the sale. However, a rental yield can contribute to cash flow
and ensuring the debt on an investment property can be easily serviced.

Rental yield has been described as “a measure of how much cash an income generating asset produces each year as a percentage of that asset’s value.” To calculate the gross yield, divide the annual total rent by the purchase price. (The net yield includes ongoing costs as well). A gross yield of around 5% is considered a good figure.

With that in mind, CoreLogic’s 2019 Top Rental Performers Report on the ‘100 best rentals in Australia’ has revealed that suburbs in Queensland provide 42 of the top 100 best locations, based primarily in regional areas with links to mining. This is a result of a combination of the job market and the duration of the population moving through.

CoreLogic Research Analyst, Cameron Kusher noted that “to make the grade as a ‘top renter’ for this report a suburb needed to have a solid gross rental yield of least 5% for units or houses, plus consistent rental growth.”

The report stated that Central Queensland coal mining town, Blackwater, has a median property value of around $122,000, a median rent of $260 a week and an estimated gross yield of 11.7%. That yield rate matched second place holder, Broken Hill in NSW.

Houses offered higher yields than units, but while country areas provided higher yields than metropolitan areas, regional Australia didn’t provide the highest capital growth.

Property investment for the rental income versus for the capital growth/capital gain each as pros and cons. The former can require a lot more regular attention to detail to ensure the property remains occupied with good tenants; the latter is a long term proposition which may require a lot more research and an ability to accurately assess market trends.

Either way, seek some expert advice before making your move. You can contact United Global Capital today on 03 8657 7640 or email [email protected] for a no cost, no obligation consultation and learn how you can position yourself for success.

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