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Investment Properties Benefit from Both Rental and Capital Growth

Announcement posted by Smartline Rockingham 18 Apr 2016

Home loan brokers in Rockingham reveal why it is important for investors to pay attention to both rental growth and capital growth.
Perth, WA, 18 April 2016 - Investment properties have grown in popularity over the years. There has been an increase in the amount of small investors who build modest portfolios to attain the lifestyles they want during retirement. According to Justin Smith, a home loan broker at Smartline Rockingham, small investors should pay attention to both rental and capital growth when building their portfolios.

A recent CoreLogic RP Data report compared rental growth with capital growth over the last ten years. The report encompassed the combined capital cities. According to the report, rents increased 50.7% over the last decade for an average increase of 4.2% per annum. Capital values increased 72% during that same decade, for an average increase of 5.6% every year.

When the data was broken down further, apartments performed slightly better with a rental increase of 53.7%. Houses increased 50.3%. Sydney performed best with a 59.4% increase with Perth following right behind at 54.6%.

Rental Growth vs Capital Growth

While a near-unanimous majority of experts agree that capital growth should be the first consideration when buying an investment property, rental growth can also be important. When someone first buys a property, it is difficult to make the rent pay for the repayments on a principal and interest loan and the other expenses that come with owning a rental property. This means that most investors have to pay some of these expenses out of their own pockets for the first few years.

However, the longer an investor owns a property, the more rent they can charge. Eventually, most properties reach a point where the rental yield is enough to take care of all expenses. Later, they usually begin to produce extra income above and beyond expenses. In other words, rental growth is important, especially in the long term.

Capital growth, on the other hand, is the main consideration for most investors. It is why many see property investment as the best way for the “little guy” to make a substantial income and retire early. Property performs better than cash-based investments. It performs on a par with shares but without the volatility.

Equity can also be used to buy more property, providing aggressive property investors the chance to build large portfolios if they are driven to do so and get the right advice.

Ultimately, both rental growth and capital growth can benefit the investor if the investor keeps a property long enough.

According to Mr Smith: “Capital growth may be the foundation upon which portfolios are built but rental income is the hammer and nails that help build the foundation. While we agree with the consensus that capital growth should be the first consideration, we also think it would be foolish to ignore the opportunity provided by rental growth.”

The home loan brokers at Smartline Rockingham have more than 50 combined years’ experience in the finance business. They have access to the credit products of 28 different lenders. When their experience and access are combined, the result is a home loan that is individually tailored to each client’s financial situation. To learn more or to apply for a pre-approved loan, call 1300 958 730 or visit their website: http://www.mortgagebrokersrockingham.com.au/.