Capital Growth vs Cash Flow? Why not Get Both!

Yes, you heard it right.

As a property investor, you may have thought that there’s no way to make a good capital gain while receiving positive cash flow - especially if you’re in Sydney.

You have a good reason for thinking so. The house prices in Sydney are high and It is near impossible to have your rental income cover the holding costs. Looking at the data from Sydney’s SA3 (ABS Statistical Area Level 3) of Eastern Suburbs - North, I would totally agree with you.

On the other hand, if you look at the regions with the highest rental yields, you’ll find most of them remote. The transaction volumes are usually low, and it seems almost impossible for them to achieve appealing capital growth. An example is the Broken Hill and Far West region of NSW. It features a phenomenal 10.29% yield, but its median house price dropped by 4.1% over the last year amidst a national housing boom.

So, are capital gain and positive cash flow enemies, and do we need to compromise one for the other?

No, we don’t have to. As a data-driven buyer’s agency, InvestorKit team has dived into the national market data and identified many regions across the country where you can enjoy both great capital growth and positive cash flow. Here we have picked 5 of the top performers for you.

·      NSW – Coffs Harbour

·      VIC – Warrnambool

·      QLD – Hervey Bay

·      SA – Onkaparinga

·      TAS – Burnie – Ulverstone

The Five Regions

1. NSW – Coffs Harbour

Lying on the northern coast of New South Wales, the median house price here has grown strongly by 21.5% over the last year, sitting at $650k at the end of August 2021. The best part is that the rental yield is still at the 4.00% mark.


2. VIC – Warrnambool

Sitting along the Great Ocean Road, Warrnambool still enjoys an affordable median house price of $465k. The figure has grown by 16.3% since a year ago. You can expect a sweet 4.47% rental yield.

3. QLD – Hervey Bay

The Queensland coastal region famous for whale-watching has achieved an 18.5% annual growth in median house price during the last year. The median house price is affordable - $430k. And what’s better, it enjoys a 4.96% yield.

4. SA – Onkaparinga

This region at the south end of Greater Adelaide has grown 15.8% over a year and still enjoys an affordable median house price ($440k). The rent level here is healthy, though. That’s why you can expect a rental yield of 4.47%.

5. TAS – Burnie – Ulverstone

Located at the northwest coast of Tasmania, this port city has achieved a 15.5% annual growth, with a current median house price of $335k. And guess what, the rental yield is a high 5.12%.

The above locations show that by buying in the right area, your investment property can grow fast in value and generate positive cash flow at the same time. How amazing!

Curious as to how how we identified these 5 regions?

First, we filter out the fast-growing SA3s (with double-digit annual growth) - Out of the 334 SA3 regions (where market data is available) across the country, 191 have achieved double-digit growth over the past year.

And then, we test their current rental yields. The below chart shows how their rental yields are distributed.

Out of the 191 fast growing regions, more than one-third (66 to be exact) are enjoying 4%+ rental yields.

These regions are in regional NSW, regional VIC, Queensland, Greater Adelaide, Tasmania and more, and the 5 regions above are among them.

Lower Yield, Stronger Growth?

Some might argue: In the past 10 years to 2021, the lower yield, the stronger the growth (as the below chart shows). I’ll just buy in those proven high-growth regions despite the low yield. Capital growth is the focus, even if it is negatively geared.

Well, based on the latest decade trend above, it does appear that regions with lower yield would achieve better performance. However, the key to success as an investor is not to follow the norm but to spot the markets that offer both healthy yield and great performance.

Here are two examples of such markets.

Richmond Valley – Coastal, where the famous Byron Bay is Located, has achieved 107.6% growth over the recent 10 years, with an initial yield of 4.63% back in 2012.

The Tasmanian region of South East Coast has grown by 91.7% over the decade with an initial yield of 4.98% in 2012.

It is also important to recognise that the norm for one decade might not be the case for another. As most of the best performing regions during the last 10 years were in Sydney, Melbourne and its surrounding cities, it means that the lower yield high growth study over the last 10 years would have tipped towards the low yield side as the winner. Hence, we felt it made sense to look at the decade prior to see if the results were the same.

From 2012 to date, the average yield levels of the four cities are: Melbourne (3.31%) < Sydney (3.43%) < Brisbane (4.18%) < Adelaide (4.28%);

And the 10-year growth of the four cities are: Adelaide (40.5%) < Brisbane (49.4%) < Melbourne (78.1%) < Sydney (97.9%).

It does appear that lower-yield cities tend to perform better.

However, if we look further back, from 2002 to 2012, the average yield levels are: Melbourne (4.19%) < Sydney (4.21%) < Adelaide (4.54%) < Brisbane (4.77%);

Yet the 10-year growth of the four cities are: Sydney (66.4%) < Melbourne (98.3%) < Adelaide (130.1%) < Brisbane (132.4%).

It appears that in the previous decade, higher-yield regions tend to perform better, opposite to the latest decade.

Success Lies in Data

Data has proven that many regions across Australia are sitting on a sweet spot where capital growth is impressive and you can expect healthy yields.

Data has also told us that low yield level does not guarantee superior performance in the coming years.

Data helps us make the right decision and avoid traps. So, the only remaining questions is: how do we best interpret the data?

Some would go to sales agents, hoping to get great advice from someone who’s getting paid by the vendor.

Some would search online, getting dozens of “best places to invest in” but don’t know how to shortlist.

Some would spend thousands of dollars on market reports.

More and more are going to buyer’s agents, saving time and effort, and having peace of mind.

InvestorKit is a buyers’ agent who is committed to the highest level of quality in the space of data interpretation and trend analysis. We understand that as a smart investor, you need solid data to support every purchase, but the fast-paced life has left you little time to do detailed research. That’s why we spend more than $100,000 on market research and data analysis every year just to make sure that we are always helping you buy in the right locations to maximise your return.

Interested in more regions that enjoy both good capital growth and healthy yield? Or would like to know how our research can help you with specific issues? Why not get in touch now and book a FREE no-obligation 60-min consultation and discuss more!

DISCLAIMER: Contents of this document are of general nature only and should not be relied upon solely when making an investment decision. InvestorKit nor any of its directors, associates, staff, or associated companies bear any liability from any action derived from the contents of this email. One should always seek third-party investment information from relevant parties such as legal, finance, and accountancy enquiries.

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