These are properties with a low capital growth profile 4-6 per cent and a high rental yield (return) profile of around 6-10 per cent. Occasionally the capital growth can be very high for a short while.
Advantages:
- Positive or neutral cash flow
- Use surplus cash flow to pay down principal and obtain more equity for future investment
- Small entry price – easy to get started
- Lower stamp duty & land tax
- Occasional good equity jump due to demand for high yield properties
- You can’t lose with money in your pocket (unless you get in too late)
- Easier to get a full-doc loan
Disadvantages:
- Pay tax along the way (money in the taxman’s pocket is not going to create wealth for you)
- Slower capital growth over longer period
- Usually regional or outer areas which can be quite sensitive to economic cycles
- Harder to get low-doc or no-doc loans for some regional properties due to postcode & population
- Lower leverage to reduce return
- Potential higher maintenance of property
- More tenancy problems dur to social economics