Capital Gains vs Cashflow Investors".

Its a catch 22, how do you create income streams/cash flow unless you have capital first.

You need both to achieve financial freedom

Here's a thread some may be interested in comments?????

Grow Capital First

 

I think you can have cashflow and cg if you use an active investment strategy. Renovating, building etc. I have done both and have seen an increase in both cashflow and capital

 

@Rixter (??) I believe was big advocate on LOE and has plans for LOE. Not sure how he is going now? Can't seem to find his username on property chat anymore.

I think income is important but more important is growth of that income. I am happy to accept 1% yield if the income is going to grow at 15%pa rather then accept 10% yield which never grows.

So when deciding investments always think am I going to be stuck with this income or will the income grow with time.

Cheers,
Oracle.

 

Obviously getting both CF and CG is the best option. But often a persons stragety and goals are purely dependant on their own individual circumstances and what they are actually investing for.

For myself, yield is the key. I usually attempt to secure something with CG potential as well. But yield is the biggest concern.

This is for two reasons. The first and foremost being serviceability issue. I have a family of 8. Our serviceability sucks. It is absolutely dreadful. Since tha they started tightening lending criteria several years ago, it has just gotten worse and worse for us. No-one wants to lend money to people with 6 kids, it doesn't matter that our family income is reasonably high. The formula they use to calculate how much kids cost is flawed, and it impacts us severely. So we look to acquire cheap properties with good yield. And most of those have very little potiential for any real CG.

The second reason that yield is more important then cashflow for us; is that our strategy does not involve selling off any of this property. We fully intend to hold forever, and use the yields to fund our retirement. If we are lucky our kids and grandkids will all have to deal with the inheritance and sales issues. Since we cannot access any equity due to crappy serviceability, and we have no intention of ever selling; CG is just not as important to us.

That's not to say we don't consider it, or take advatage of it when and if the opportunity ever arises. CG was a big help to us in the past before our major serviceability issues (when we had less kids). Negative gearing and CG worked well for us and helped us gain a foot on the property investment ladder.
But things change, and being able to adapt your strategy to suit your current circumstances is key.

Its quite possible that our stragey for proceeding will change several more times before we actually do retire as well. Especially as kids start growing older and are no longer dependent and serviceability improves. Negative gearing will probably be on the agenda once again for us at that point (depending on any governmental changes to NG), and CG will probably be something that starts to once again gain more appeal.

We have equity we can leverage, not all equity is gained through CG. Using yield to pay down debt can be a wonderful tool for gaining equity. Particularly as our options for using the yield elsewhere was / is limited.

So horses for courses.

 

Agree, this is a business, active investing

 

Rixter moved to Melb
Sadly LOE today wont work due to current financial squeeze. Not sure it ever did??

Thinking you can do a mix of LOE/income but I think you would need to be an active investor with a decent asset base

 

The consensus on the forum from most investors seems to be that you don’t invest in property for yield but for CG. That is except if you need it to increase serviceability. For yield you’d go commercial.

Now this isn’t what I personally believe but I’m trying to summarise what I’ve read from all the threads debating CG vs CF.

I feel like I’m missing something. I get that gross yield isn’t the same as high yield but say you could purchase a property for 400k not too far from a capital city centre (thus reducing risk and vacancy rates), and you can pay it off pretty quickly or can make it cash flow positive from day 1. Now what is wrong with actually purchasing the property that you think you’ll use as passive income once you retire now instead of waiting to get capital gains and then purchasing high yielding properties?

If a 5% gross yield IP is paid off within 5-10 years, and the person is still decades from retirement, isn’t the net yield going to eventually come close to this return, bringing something like 25k a year in rent? Or are other costs really a burden, such as insurance, marketing, property manager etc. I just can’t see how getting decades worth of rent for an affordable property would be a bad thing?

I’m genuinely asking as I don’t currently hold any IP.

 

I have posted this many times on PC.

I know everyone is different but I will share our strategy with you:

• We use property to primarily create Net Worth, especially with the use of leverage, But it takes time (due to the high buy-in costs, the high holding costs, and the high selling costs) and a lot of work (property is NOT a passive investment) to do this. Property is really crappy for income, especially after all holding costs have been paid.
• We use shares to primarily create income, with growth being a bonus. It takes time for compounding to weave its magic but shares are a lot less work then property.

In the Net Worth creation journey and the passive income generation journey, the tortoise normally does a lot better than the hare.

For most who have been successful in this, it wasn’t a sprint; it was a marathon.