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Capital Gains vs Cashflow

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  • Capital Gains vs Cashflow

    I am a novice in property investment and educating myself. I keep hearing the discussions about capital gains vs cashflow.

    Are they mutually exclusive (generally speaking)?

    I keep hearing "for capital gains...buy land.. buy houses on sections and not units / apartments" and "properties with good cashflow do not offer high capital gains". I am really to keen to hear from people who have "been there done that" and understand their perspective.

    From what I have read, examples of cashflow positive properties get quoted as ...block of flats, units, properties with multiple income potential etc.
    Is it a myth that these properties do no offer good capital gains (relatively)?

    Not sure what should I be chasing.

    I have an equity of $300K and mortgage of 60K on my own house. No investment. Household income of $200k p.a.


  • #2
    Personally I don't buy into the whole low capital gain/high yeild vs high capital gain/low yeild thing.

    Coastal property was in-trend and its capital growth outperformed other property classes for several years, and now - low demand, slumping prices, and no income.

    I think most people agree that you'll always get better growth out of owning your own freehold (fee simple) land/property, as opposed to leasehold, an apartment/unit titled shop/office floor/hotel room etc.

    I think it's a myth that flats or multiple income properties don't increase in value as much as other properties. My flats have certainly kept up with the growth in value of neighboring properties which aren't multiple-income, and infact have done much better as I constantly take steps to increase the rent and therefore value. You can buy flats in a good desirable area, expect good capital gains over the long term, and still expect a pretty good yeild too.

    My 2c.


    • #3
      I suspect its largely a myth and over the long term, most areas appreciate the same. I once saw some analysis which showed all Auckland suburbs had gone up the same amount over the long term (within 10%). I sure there are short term variations but these would normally average out over several booms.



      • #4
        I think right now is one of those times where you can pick up a significantly discounted property & hence be in for some good capital gain in coming years, yet at the same time they may also provide very good cashflow, making it easy to hold them.

        I don't think that has been the case for a while & hence your hearing about them being mutually exclusive.
        Until now the positive cashflow properties probably tended to be at the low end of the price range, which also put them into less desirable areas & thus may have seen less growth than other areas, but most still got some growth.
        And of course 10% increase on a low priced place (say 100k) will represent a lot less dollars than 10% on 500k - 10k against 50k so the percentage gain may be less visible even though both may have grown by the same.

        many would say have 5 x 100k properties to get the same 50k capital growth and be cashflow positive at the same time.
        Last edited by Keithw; 18-05-2009, 10:39 AM.


        • #5
          I think the point is that the rental areas do appreciate as much as other areas. They are just lagging 18 months to 2 years behind the central Auckland suburbs during the boom.

          You would definitely need to look at the various suburbs long term before making an assumption that the non-rental areas appreciate more (they would need to be quite a bit more to make up for the negative losses accumulating).