{"id":7400,"date":"2016-03-17T15:00:08","date_gmt":"2016-03-17T04:00:08","guid":{"rendered":"http:\/\/realestatetalk.com.au\/?p=7400"},"modified":"2016-03-17T15:00:08","modified_gmt":"2016-03-17T04:00:08","slug":"rental-growth-vs-capital-growth","status":"publish","type":"post","link":"https:\/\/channels.realty.com.au\/realtytalk\/rental-growth-vs-capital-growth\/","title":{"rendered":"Rental growth vs capital growth"},"content":{"rendered":"

In his regular column in\u00a0Switzer<\/a>, John McGrath discusses the difference between\u00a0rental\u00a0and\u00a0capital growth.\u00a0\u00a0<\/strong><\/p>\n

Here is what he had to say:<\/h4>\n

It wasn\u2019t surprising to see a recent Corelogic RP Data report showing rental growth has been slower than capital growth over the past decade.\u00a0\"mcgrath\"<\/a>
\nThis is among the reasons why I always recommend prioritising capital growth prospects over rental returns when purchasing an investment property.
\nThe report shows that across the combined capital cities, rents have increased by 50.7% (or 4.2% per annum) over the past decade compared to an increase in capital values of 72% (or 5.6% per annum).
\nLooking at different property types, house rents increased by 50.3% while apartment rents increased by 53.7%.
\nDrilling down to the cities, the two capitals with the greatest rental increases were Sydney (no surprise) at 59.4% and Perth at 54.6%.<\/p>\n

Rental returns are important because they help you with your loan repayments.<\/h4>\n

That\u2019s their primary purpose at the beginning of your tenure of an investment property.\u00a0\"Valuation-2
\nIn most cases, especially in the high value markets of\u00a0Sydney<\/a>\u00a0and\u00a0Melbourne<\/a>, the odds are the rent on a newly acquired investment property will not cover your repayments or other costs in their entirety so you\u2019ll be negatively gearing your investment.
\nRegardless, the rent will still take care of a sizeable chunk of your outlays, thereby reducing the cost of you holding your investment property while time does its thing to deliver capital gains.
\nHowever, over time, if you choose to pay the principal and interest on your investment loan; and your rental returns gradually increase year to year, you will eventually get to a point where your rental returns do in fact cover the whole mortgage.<\/p>\n

And throughout all this, tax benefits such as depreciation, will also have a positive impact.<\/h4>\n

After a bit more time, your rent will start to cover other expenses like strata fees and council rates too.
\nThis would take you into positive cash flow territory and that\u2019s an excellent place to be \u2013 it\u2019s the dream scenario for retirees.
\nThe way you get to positive cash flow requires good long-term strategy.<\/strong>
\nMany people say interest-only loans are the way to go with investments because they keep your repayments to a minimum.\"tax<\/a>
\nThis is entirely true and a good strategy to adopt if your cash flow is tight.\u00a0<\/strong>
\nBut if you want to get to a point where the rent is covering everything, you\u2019ll generally need to start paying some Principal at some point.
\nIt\u2019s helpful to think about where you want to be in retirement and work backwards from there.<\/p>\n

But don\u2019t do it alone \u2013 sit down with your accountant or financial advisor.<\/h4>\n

You might want to keep your loan at interest-only to keep outlays as low as possible, wait for capital growth; then sell in 10 years for a profit.
\nAnother scenario might involve paying the principal and interest to reduce the loan down to positive cash flow as soon as possible, with the intention of creating a strong, debt-free, income-producing asset for life.
\nYour strategy will depend on your goals and the timeframe you have to achieve them.<\/strong>
\nBut if there\u2019s one piece of advice I hope you take when buying an investment it\u2019s this \u2013 capital growth first, rental return second.
\nAlways.<\/p>\n","protected":false},"excerpt":{"rendered":"

In his regular column in\u00a0Switzer, John McGrath discusses the difference between\u00a0rental\u00a0and\u00a0capital growth.\u00a0\u00a0 Here is what he had to say: It wasn\u2019t surprising to see a recent Corelogic RP Data report showing rental growth has been slower than capital growth over the past decade.\u00a0 This is…<\/p>\n","protected":false},"author":176692471,"featured_media":3300,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[13],"tags":[],"class_list":["post-7400","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-latest-story"],"yoast_head":"\nRental growth vs capital growth - Realty Talk<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/channels.realty.com.au\/realtytalk\/rental-growth-vs-capital-growth\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Rental growth vs capital growth - Realty Talk\" \/>\n<meta property=\"og:description\" content=\"In his regular column in\u00a0Switzer, John McGrath discusses the difference between\u00a0rental\u00a0and\u00a0capital growth.\u00a0\u00a0 Here is what he had to say: It wasn\u2019t surprising to see a recent Corelogic RP Data report showing rental growth has been slower than capital growth over the past decade.\u00a0 This is...\" \/>\n<meta property=\"og:url\" content=\"https:\/\/channels.realty.com.au\/realtytalk\/rental-growth-vs-capital-growth\/\" \/>\n<meta property=\"og:site_name\" content=\"Realty Talk\" \/>\n<meta property=\"article:published_time\" content=\"2016-03-17T04:00:08+00:00\" \/>\n<meta name=\"author\" content=\"rolanrush\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"rolanrush\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"3 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\\\/\\\/channels.realty.com.au\\\/realtytalk\\\/rental-growth-vs-capital-growth\\\/#article\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/channels.realty.com.au\\\/realtytalk\\\/rental-growth-vs-capital-growth\\\/\"},\"author\":{\"name\":\"rolanrush\",\"@id\":\"https:\\\/\\\/channels.realty.com.au\\\/realtytalk\\\/#\\\/schema\\\/person\\\/384a57ac9e52cb9bf19896cb15eaa52d\"},\"headline\":\"Rental growth vs capital growth\",\"datePublished\":\"2016-03-17T04:00:08+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\\\/\\\/channels.realty.com.au\\\/realtytalk\\\/rental-growth-vs-capital-growth\\\/\"},\"wordCount\":554,\"commentCount\":1,\"image\":{\"@id\":\"https:\\\/\\\/channels.realty.com.au\\\/realtytalk\\\/rental-growth-vs-capital-growth\\\/#primaryimage\"},\"thumbnailUrl\":\"\",\"articleSection\":[\"Latest Stories\"],\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\\\/\\\/channels.realty.com.au\\\/realtytalk\\\/rental-growth-vs-capital-growth\\\/#respond\"]}]},{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/channels.realty.com.au\\\/realtytalk\\\/rental-growth-vs-capital-growth\\\/\",\"url\":\"https:\\\/\\\/channels.realty.com.au\\\/realtytalk\\\/rental-growth-vs-capital-growth\\\/\",\"name\":\"Rental growth vs capital growth - 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