Important: Unless you’re a buyer’s agent who is qualified to give accredited advice on property investments, you should refrain from doing so. That said, you should be familiar with the different property investment strategies for both capital growth and yield. You should also be familiar with what is considered to be an adequate yield on a property, and/or what is regarded to be good capital growth.

Capital growth versus yield: which is a better investment strategy?

Before we get into which is better, let’s talk about how they’re different. One strategy isn’t necessarily a better strategy; it depends on each client and their needs.

Buying for capital growth

For a capital growth strategy, you would need to be fully aware of current demographics and projected population increases or infrastructure works in the suburb being considered. For example, areas that are in high demand and don’t have many properties coming on the market could appreciate in value faster than, say, inner-city apartments where an over supply of property exists. 

If your client is happy to hold a property for capital gain, they should be aware that this is (usually) a long-term strategy and might not give them the cash flow they need to service their mortgage or improve their lifestyle, resulting in the property being negatively geared. 

In Melbourne (according to property pundit Michael Yardney and realestate.com.au) suburbs where growth is predicted to outpace the average include Altona, Dandenong North, Highett, Carrum Downs, Bacchus Marsh, Capel Sound, Werribee, Wollert and Yarra Glen. 

Remember that when you’re helping your client to choose wisely, there is another approach that, while simplistic, is effective: You might want to encourage them to consider adjacent suburbs to the fast-growing suburbs. This way they can take advantage of the ‘halo effect’, which is when nearby suburbs get dragged up with the rising tide of the high-growth suburbs.

Buying for yield

Should your client have informed you that they’re after cash flow and want their properties to generate an income, then you would show them the facts on properties that offer a good yield. 

Net rental yield is basically how much money you make after expenses. So if your rent is $1,000 a week and your mortgage, management, insurance, rates and maintenance costs are $500 a week, the property would ‘yield’ $500 a week.

In Melbourne at the time of writing (and according to CoreLogic figures), the highest-yielding suburbs included Melton (at 4.5%) followed by Hastings, Harkness, Melton South, Kurunjang, Campbellfield, Frankston North, Maddingley, Dallas and Meadow Heights.

How buyers’ agents help

As always, your role is to protect your buyer from making a costly property mistake and to protect their interests. If you aren’t qualified to give property financial advice, then at least you should have a good understanding of growth areas and demographics and other fundamentals so you can help your clients to buy wisely.

Join the conversation at Property Mavens

In our group, capital growth versus rental yield is just one of the topics we discuss so we all learn from each other. Want to up your game as a buyer’s agent? We have more buyers wanting help than our team can handle. Get in touch to find out more.