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Income vs Growth Through Property Investment

In recent years the property investment landscape has radically changed. The recent property crash turned many expectations and attitudes on their head. The same big question remains – should you focus on income or capital appreciation? Underlying this question is a second one – is it possible to achieve both of these outcomes?

What was possible before the crash?
In the last property heyday, investors had no interest in rental yields. Buying a property that lost money every month was surprisingly common. When capital values were increasing by 10%-20% a year then it just didn’t seem important in the scheme of things. Of course not all investors had this view. If you were older, perhaps near retirement age, or had saved up a decent capital sum which you wanted to use to create an additional income stream, then rental yield was always important. However, with property prices racing ahead it was truly difficult to get a meaningful rental yield. 5% gross was good. That was probably around 3% after costs, which barely kept pace with inflation. So in the heady days of huge price surges, investors for capital growth had a great time, whilst investors for income struggled to find decent returns.



What’s possible now?
In today’s uncertain market, property price rises are generally considered to be modest and no one can accurately predict what is going to happen next. However, income from property is far more certain as demand for rental property continues to outstrip supply.

A second certainty (at least some of the time) is equity gain if you can achieve a genuine below market discount. This locks in your equity gain on the day you buy and this amount will be part of your final profit when you sell. In fact, you don’t even need a price rise to realise this equity gain!

Somewhat less certain is the potential growth in coming years. Depending on which country you are in (and the local market within that country) the potential for growth varies widely. In the UK, for instance, the overall view is that property prices will show little change throughout 2017. But there are pockets where price rises could rise up to 5% and other places where prices might still fall a little. Total variation from the best to the worst areas is around 10%.


In the USA the distinctions are more marked. Property prices in certain areas of Florida could rise by 10%-15% in 2017, whilst in Las Vegas (for example) there may be another drop of 12% or more. The total variation from the best to the worst areas in the US is therefore much greater at around 27%