Cash flow vs capital growth

Cash flow vs capital growth

What will make you richer faster? Is chasing positive cash flow the best way, or is a capital growth strategy the better option to suit your situation? Before deciding on your preferred option, you need to look at some of the pros and cons of cash flow and growth property investments.

Cash flow strategy

Pros

– Using a cash flow strategy means investors are getting a weekly income and realising the value of their investment over the short term.
– Investors have more cash in their pocket to cover regular property expenses and unforeseen property expenses.- Extra cash can be used to pay down loan creating equity.

Cons
– In a residential property scenario where a property has a high rental yield and cash flow, it generally has very negligible or no capital growth.
– Since investors are earning a positive income, they can’t take advantage of a negative gearing tax benefit and instead have to pay tax on their rental profits.

Capital growth strategy

Pros
– Increased value of the property over the long term more than outweighs the cash flow benefits in the short term.
– Investors are more likely to make a loss with a capital growth strategy and can take advantage of a negative gearing tax benefit.
– LVRs are generally more generous, because banks are typically more comfortable lending for properties in desirable growth areas, often big cities.

Cons
– Cash flow is negative, meaning investors with a capital growth strategy need to dip into their own pockets to cover property-related expenses, such as mortgage repayments and council rates.

Why not contact us at info@japanpropertyinvestments.com and we can explain more about investing in Japanese Real Estate.

Capital growth strategy

Capital growth strategy

A capital growth investment strategy is where a property is purchased that is expected to produce above-average increases in property value over time.

These properties often have a higher purchase price and lower rental yield. This is referred to as negatively geared, which means the annual cost of your investment is more than the investment property rate of return.

This strategy has 2 advantages:

In some countries tax benefits or deductions may be claimed for some of the out-of-pocket expenses or losses. Some countries, such as the UK has stopped allowing this and other may follow

The other advantage is that as your investment property value increases you may be able to draw out equity or borrow against it to expand your investment property portfolio.

These properties are typically found in capital cities, major regional centers or areas under development. They often come at a premium and require you to dip into your savings to cover mortgage costs.

Positive Cash Flow Strategy

Positive Cash Flow Strategy

Positive cash flow properties are ones that have a rental yield that pays all the costs associated with your property using rent and still having profit. These costs include taxes, repairs, mortgage repayments (if any) and bills. In other words, it’s having a net positive after paying expenses using your collected rent.

High return and low capital growth
Most cash flow investors are willing to accept lower growth rates due to the investment being able to generate an income.

For example, if your goal is to eventually retire and live off your property income, then positive cash flow properties may be what you focus on. You can acquire investment properties that deliver a strong return, and once you reach your desired passive cash flow, whether it’s $500 or $5,000 per week, you can choose whether or not to keep working, and live off your property income.

Cash flow is also what helps you to build your portfolio. If you apply for a loan to buy a property, the first question the lender asks is: can you pay back the loan?
Wherever your income is coming from, it all gets taken into account,

When you invest for capital growth you are speculating and you’re forgetting that your number one job is to maintain mortgage debt reduction via a tenant’s income. If you have a tenant who pays their rent on time and looks after the property, and you actively pay down the mortgage with your cash flow, you can multiply that strategy and build a portfolio.

Location, location, location, and research

Location, location, location, and research

Location, research, kobe

Location, and research

We obviously spend a lot of time researching properties, locations and investment strategies – it’s a passion!  This week I discovered this interesting article on Forbes and it made me think about our investors.  Briefly, the article talks about three factors that you, the investor, should keep in mind when choosing an investment location.  Let’s look at how these factors compare to the JPI investment model.

Strong rental market?

I like this article because it gets straight to the point.  Why would you buy a rental property in a depressed area?  You might be hoping for a bump in rent or an increase in property prices but smart investors don’t hope.  Smart investors seek out strong markets to benefit from. The Japanese rental market is strong and stable with good tenants.  It is an established market that continues to do well on monthly returns and steady property prices.

Seek diversity

Another good point form the author.  I speak with many who believe real estate doesn’t offer the same diversification as other investment vehicles, which I believe is not true.  You can own commercial or residential real estate.  Or own rural, semi-urban or urban real estate.  Perhaps even own a $10 million mansion or a $20,000 parking lot.  Or you can choose to diversify the country you invest in and that is where JPI can help you.  Perhaps the rental yields in your home country are slipping, less demand or an excess of supply may be reducing the amount you can charge in rent?  Or property prices are so high you will have to subsidize the mortgage payments to cover your payments.  Japanese property offers investors from around the World the opportunity to access diversity with excellent returns from a stable tenant base.

Moving in?

Okay, this is where the author’s strategy and our investors differ.  The author has a very sensible strategy towards retirement here.  If you want to retire in an area that you are not currently working in, buy a rental property there, have tenants build equity, ideally pay off the whole mortgage.  Then you will be all set to enjoy a mortgage-free retirement in your dream location.  This is a very smart strategy.  However, it is unlikely that JPI investors will want to retire to Japan, although we do have one or two investors considering this option.  Personally, I wouldn’t retire anywhere else!

So there you have it an interesting article that made me think this week.  If you are looking to reap the rewards of a strong and stable rental market whilst diversifying your investment portfolio, call or email us today to “invest together, grow together” www.japanpropertyinvestments.com

No sign of Rent Caps in Japan

No sign of Rent Caps in Japan

Rent caps in real estate

No need for Rent Caps in Japan.  rent caps in real estate

Real estate investment around the world is the number one choice for millions. In some countries, it has become so popular that states have decided to start controlling things.  Here are a few limited examples.

China

We know that the Chinese government is attempting to slow down the price increases.  The idea is to allow the ordinary person to afford a home of their own.

Australia

In Australia, the government makes it very difficult for Australians living overseas to own investment or buy to let properties.  An attempt to limit overseas money coming in and pushing up prices.

Asian Nations

While many Asian countries limit land ownership to their own nationals in an attempt to keep real estate prices under control.  Foreigners can still own leasehold properties.  Buying a freehold is restricted to local born nationals.

The UK

The UK has recently seen reforms to slow down buy to let landlords and limit the number (or value) of properties individuals can own and rent out. Now the UK may go one step further with the opposition political party positioning themselves behind a rent cap strategy as one of their election manifesto points. Time will tell if this is part of a general election winning formula.

How about Japan?

We are fortunate to live, work and invest in Japan. There are rules and regulations for everything except, who can get into real estate investing. What’s the reason for that?  Perhaps it is the limited number of people involved in Japanese Real Estate keeps the government out of the sector. Whatever the reason, we are happy to introduce to you honest properties with great returns, get in touch with www.japanpropertyinvestments.com

 

invest together, grow together this is our mission we want to share with you

 

 

 

North Korean and Japanese Property

North Korean and Japanese Property

Interesting week

For a number of reasons, it has been an interesting week.  I was contacted at the start of the week by a friend and customer who asked about North Korea and my safety!  Global media has to sell content, papers, videos, new stories you name it every media outlet out there has to see.  So we saw the BBC, CNN, The Guardian, to name a few all leaping on the recent North Korean missile launch.  Of course living in Japan we are well aware of our unfriendly Northern neighbours, the threat has been there a very long time.

Korean and Japanese property

History of hostility

The Korean War ended in July 1953, over 60 years ago. And began a period of isolation for North Korea or the Democratic People’s Republic of Korea.  There have been several occasions during the past 60 years where tensions have boiled up.  However, in recent history, we have been blessed with a level headed sensible US president that helped keep the six parties talking and away from the edge.  Today we do not have such a sensible President and that is perhaps the biggest most worrisome change.

Missiles

North Korea started its missile program in 1976 and successfully test fired their first missile 8 years later in 1984.   These were relatively short range scud missiles.  The situation changed dramatically in 1998 when North Korea fired a long range missile over Aomori, the most north prefecture in Honshu – Japan’s main Island.  It landed safely in the sea but put Japan on edge.  Since then there have been 4 more successful launches in 2009, 2012,  2016 and most recently last week.  What has the World watching is Kim Jong-un’s desire to hit Guam and of course Donald Trump’s response.  Whatever you think about either character, they hold a lot of power over many millions of people in the Asia Pacific region.

Are we worried?

Well yes and no.  Tensions have certainly increased since the US election last year.  But has much changed?  There is an obvious increase in posturing on both sides but we believe sense will prevail and life will continue in very much the same way it has for the past 60 years.

The outlook for Japan?

In a word, unchanged.  There is more inbound tourism than ever before.  Unphased by the missiles, tourists come in droves buying everything they can and enjoying all that Japan has to offer.  Preparations for the Rugby World Cup in 2019 and the Olympics in 2020 are well underway, building new sites and increasing the jobs for locals and expats alike.  Property prices in Tokyo continue to rise, in turn, pulling up secondary markets.  Immigration is on the increase bringing an increased labor force to the country.

Unphased and moving on

We remain very optimistic about Japanese property and continue to work on customer requests from around the World.  Japanese real estate continues to offer honest and solid returns and JPI is in the thick of things.  Across the border, in North Korea, the market seems buoyant too.  This article caught my eye this week showing how prices in Pyongyang, the capital of North Korea are on the up despite private buying and selling of property being “strictly banned”.  It is interesting that even in the most isolated country in the World, the residents that can look to property to invest in.  If you would like to know more about the Korean situation or investing in Japanese Properties for great returns, contact Japan Property Investments today.

 

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