Return on your investment property
The whole idea of purchasing an investment property is usually to increase your income and secure your future. Most people will purchase an investment property to gain a positive return unless it is an offset investment to minimise your taxes.
As a property investor, you would expect two distinct types of returns – firstly, is the capital growth from the property, not usually received until you sell when the value has risen or when you refinance using the property as equity. The second type of return is ongoing rental income, which you’ll receive during the rental period.
In order to make the capital gains on an investment property, it will need to increase in value by more than the original purchase price, including the purchase costs of stamp duty, legals and the agent’s selling commission. By selecting a property in a well-located area where there is population growth and
infrastructure being developed, there is a higher probability that you will make a capital gain if you are prepared to hold onto the property for the long term – usually more than 5 years would be required. Investing in property is nearly always a long term strategy.
The capital gain is not necessarily a foolproof guarantee especially if you are only going to hold onto that property for a short period of time.
The rental income is far more certain. So long as you have a tenant that signed a lease, then they are contracted to paying the rent for the duration of the terms of the lease. The
lease may be for a smaller period initially, i.e. six months or you may offer a good tenant a longer lease of up to two years.
It is not usual for a property to offer both capital gains and high yielding income. The trade-off between the two makes it important for you to consider an investment strategy before you event start searching for a property.