Property Investment
2 min read
Author: Andrew Nicol
Managing Director, 20+ Years' Experience Investing In Property, Author & Host
Everyone wants the perfect investment property.
The one that:
Here’s the truth: you can have all of those things.
But not in a single property. And that’s because all investments have trade-offs.
To show these trade-offs, I created the Property Triangle.
The idea is simple. You can choose 2 out of these 3 things:
You can say ‘yes’ to 2 of those. But the trade-off is that you have to say ‘no’ to the other one.
So what happens if you want a property to go up in value quickly and pay money each week?
You’ll often need to put in a cash deposit. That’s to get the mortgage lower.
What if you don’t have a cash deposit and you want the property to pay you money each week?
The property often won’t grow in value as fast. That’s because there is a trade-off between growth and yield properties.
Want the property to grow in value quickly and put in no cash deposit? The trade-off is that you’ll often need to top up the cashflow each week.
A property isn’t automatically:
It depends on how you buy it.
Let’s say you buy a $525k property renting for $500 a week. After all expenses, you might be topping up the mortgage by $150 a week.
But what if you put in a 40% cash deposit? Now you’re paying less interest to the bank, and suddenly the property becomes cashflow positive – making you $25 a week instead.
So, a property is not inherently cashflow positive or negative.
It comes down to:
When I show this diagram to first-time property investors, they often struggle to decide which two to choose.
Here’s what I recommend. Just pick one.
Pick the one that is the most important to you. Because then it becomes a choice between the other two.
Many first-time property investors don’t have a cash deposit.
So it doesn’t matter whether the property goes up in value faster or whether it’s cashflow positive.
What matters is that it must have 100% lending (no cash deposit).
Once you’ve got that sorted, you decide between the other two … faster capital growth or positive cashflow.
So start with the one that is most important. Because then it comes to a choice between the two alternatives. If you care most about:
All investments have trade-offs. This is what they are in property investment.
Managing Director, 20+ Years' Experience Investing In Property, Author & Host
Andrew Nicol, Managing Director at Opes Partners, is a seasoned financial adviser and property investment expert with 20+ years of experience. With 40 investment properties, he hosts the Property Academy Podcast, co-authored 'Wealth Plan' with Ed Mcknight, and has helped 1,894 Kiwis achieve financial security through property investment.
