In other blogs I have written about getting your income to a point of being able to start investing. You have built your foundation and have a business that is matching your regular paycheck, you have 6 months of your monthly expenditures saved for emergencies, you’ve gotten all your debt paid off and you have enough insurance to cover you and your family. Now we are ready to look at investing.
So what feels right for you? That is a very important question. Just like picking that home based business, you have to be comfortable in your investments. I am going to talk about rental investments and the difference between cashflow properties and capital growth properties. Let’s make it brief a cashflow property is a property that covers all of its expenses with money left over. Cashflow properties are found in low value areas in small regional towns or high risk properties like student housing or apartments close to hospitals. Capital growth properties are the very expensive properties, you know the ones you can brag about owning to impress people. That high class suburb you here about all the time. It may sound impressive when you are name dropping, but beware this property is costly. The rental income can be very low and can be hard to re-sale.
For beginners a cashflow property sounds like the best choice. The rent takes care of everything the property needs so there is no out of pocket expenses. Growth and income may be slow, but because the rent takes care of the property and puts money in your pocket you can use that income as a down payment on another cashflow property to add to your portfolio. Over a 10-year period there will not be much capital growth. After some experience you may be ready to graduate to the capital growth property. Very expensive to have and rental income is going to be low so you will have out of pocket expenses on this one. The area you will find these properties are in well established sides of town with a good history. If you are looking to buy only one rental property the capital growth property would be the one to buy. In the same 10-year period this one will double in value.
Diversification is always a positive. So you’ve got three or four cashflow properties with a slow but steady growth they are taking care of themselves plus giving you an income. Balance your portfolio with a capital growth property. Investing in rental properties is a long term investment. Leveraging your income keeps you buying properties and increasing your appreciation.