It’s hard to understand why some investors buy properties with yields of around 2% when they could use the same budget to buy multiple properties that would pay three times that income.
Australia’s blue-chip suburbs are notorious for poor rental yields, making holding costs very heavy on your pocket. This might be acceptable for high-income earners that barely notice a few hundred dollars missing from their income each week. But for an average wage earner, it can be very painful.
The situation only gets much worse when you consider the cashflow this property will provide you in retirement, compared to a portfolio of high-yielding properties at exactly the same value.
Learning to plant money trees
Investors should view their properties like money trees. Yes, we want them to grow in value, but we also want to make sure they provide us with plenty of fruit to eat along the way.
If your trees only produce a 2% yield, you will need three times as many trees (or three times as much equity) to produce the same level of income. The difference will be life-changing!
Some investors dismiss this thought by saying they plan to sell the property when they retire so they can access all the equity they have created. But this plan also seems crazy to me. Why would you cut down your money tree?
When you sell your property, not only do you stop receiving any additional cash flow from the property, but you also are required to pay capital gains tax.
Dual income properties
Today’s Investors are starting to realise the huge benefits of high quality, high-yielding investment properties, located in premium locations. New state and local council laws allowing an extra dwelling to be added to existing properties have seen some investors poorly exercise this opportunity by adding inferior ‘granny flats’ to their backyards. Whilst this can increase the rental yield, it can also detract from the presentation of the property affecting its value, future capital growth, tenant quality, and overall saleability.
Over the years, one property type has emerged and now clearly stands out: dual income properties.
These properties feature innovative home designs, offering a revolutionary way for investors to collect two rents from one property. From the street, this clever design presents as an attractive large family home but on closer inspection, you will discover that there are two self-contained dwellings under one roof: a completely private 3- or 4-bedroom home on one side, and a 1- or 2-bedroom home on the other. The two dwellings are divided by a sound – and fire – insulated wall, and feature individually fenced yards and entrances, offering a greater degree of privacy and lifestyle, and ensuring high demand from premium tenants.
This high-performance property type can often flip an investor’s typical negative cash flow experience, into strong positive cash flow, from day one.