Growth vs. Yield: Choosing the Right Investment Strategy
When investing in property, one of the fundamental decisions you'll face is whether to prioritise capital growth or rental yield. Each strategy has its merits, and the right choice depends on your financial goals, risk tolerance, and investment timeline.
Investing for Capital Growth
Capital growth refers to the increase in a property's value over time. Investors focusing on growth aim to purchase properties in areas with strong potential for appreciation, such as regions experiencing economic development, population growth, or infrastructure improvements.
Key characteristics of growth-focused investments:
Location: Properties in high-demand areas, often in major cities or rapidly developing regions.
Property Type: Standalone houses or townhouses that appeal to owner-occupiers.
Rental Yield: Typically lower, meaning the rental income may not fully cover expenses initially.
Return Timeline: Long-term, with significant gains realised upon property sale.
Example: Investing in a new build property in Auckland, where ongoing urban development and population growth drive property values upward.
Investing for Rental Yield
Rental yield focuses on generating steady income through rent. Yield-focused investors seek properties that provide higher rental returns relative to their purchase price, ensuring positive cash flow from the outset.
Key characteristics of yield-focused investments:
Location: Properties in areas with strong rental demand but potentially slower capital growth.
Property Type: Multi-unit dwellings or properties designed for multiple tenants.
Rental Yield: Higher, providing immediate income that can cover expenses and generate profit.
Return Timeline: Short to medium-term, focusing on consistent income rather than long-term appreciation.
Example: Purchasing a new build duplex in a regional town like Gisborne, offering higher rental yields due to lower property prices and strong tenant demand.
Combining Growth and Yield
For many investors, a balanced approach that incorporates both capital growth and rental yield can provide a diversified and resilient portfolio. New build properties often offer this balance by combining modern appeal (attracting tenants and ensuring compliance with regulations) with the potential for value appreciation in growing areas.
Benefits of new build investments:
Compliance: Meet current building codes and Healthy Homes standards.
Low Maintenance: Reduced repair costs due to new construction.
Tenant Appeal: Modern amenities attract quality tenants, reducing vacancy rates.
Tax Advantages: Potential eligibility for tax benefits (consult a tax advisor for specifics).
Ready to explore new build investment opportunities?
Contact us today to discuss how we can assist you in achieving your investment goals.