There are some questions to do with property investment that remain timeless, and this is one of them.
Regardless of recent performance; regardless of where we are in various market cycles and whether some areas are booming and others are in a bust, people want to know: should they funnel their funds into affordable regional investments or is capital city stock still considered to be the ‘safest’ way to invest?
This question was sent through to us this week and I’m going to try and answer this question once and for all (although I know it will come up again!)
Here’s the reality of the situation.
Capital growth investments are the wealth-creating engine of any investor’s portfolio. Without them, your portfolio will simply fail to get anywhere and your wealth creation journey will be stopped in its tracks.
Cash flow, however, is the oil that keeps the vehicle moving forward. It provides the lubrication that is needed to keep the investments ticking over.
You can’t go anywhere without an engine, but without oil your engine is buggered.
In other words, both types of properties have a place in your portfolio.
We always suggest to our students that they aim for a balance of both cashflow and capital growth investments in their portfolio.
I always suggest you aim to buy growth properties first, as these will allow you to continue to grow your portfolio. If you buy a $500,000 property and it grows in value by 6% per year, after two years you’ll have more than $60,000 in equity growth, which you can leverage towards your next investment.
But if you can’t afford a growth investment straight off the bat, go for cashflow! Owning something that generates cashflow and puts money in your pocket each week is better than owning nothing.
Generally speaking, regional properties are more likely to deliver high cashflow and lower growth, while capital city investments are more likely to generate higher growth but lower yields.
Now in saying all of this, there are exceptions to this rule. Some regional markets can perform just as well as capital city investments. I’ve got students who have properties in large regional towns, which have actually out-performed suburbs in capital cities!
So when it comes to the battle of regional vs. city investments, I have to call a joint winner. I personally own a mix of both property types, and when it comes to designing your own optimal property portfolio, the ideal investment for you to take on next will depend on your goals, your strategy and your budget.
Keep in mind that some regional towns can be riskier, particularly mining towns and other one-industry locations.
Again, it all comes down to quality research. If you don’t do extensive due diligence, you could end up with a property in a low-demand regional town experiencing frequent vacancies.
Your success also depends on how well you buy, the quality of the property and the town your select.
If the town has:
- Strong population growth,
- Strong infrastructure, and
- Lots of industries to sustain employment
Then you’re possibly onto a good thing!
Our students are always welcome to discuss any potential investments with us, which can be really valuable when you’re not sure what to do next. If you’re not sure whether you should move forward with a deal, feel free to contact our coaches for a complimentary discussion to see if we can help you move forward.
Or do you have a burning question? If you’d like to add your query to the pile, please click here. And look out for my 2 Cents reply in an upcoming episode of my 2 Cents Tuesday podcast!