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Capital gains versus rental yields: What you need to know as a property investor

By Andrew Bell

Before committing to any Surfers Paradise property as an investor, there are a lot of different things to wrap your head around and understand. After all, the backbone of a good investment approach is knowledge and having a decent grasp on the various ins and outs of the industry. So coming to terms with all the jargon and legal aspects of running a property portfolio can make a huge difference between investment success and weaker property results. 

For example, understanding the different income types and how they work within the market can be a huge benefit. By understanding and angling your investment approach to these, you can help maximise the returns you receive in the long run, rather than simply moving blindly into the real estate landscape. 

There are two main types of income for investment property portfolios: capital gains and rental income. Each of these have their own pros and cons and can alter the way people approach their portfolios. However, both are worth understanding to help ensure you get the most out of your investment properties over the long term.

Capital gains

As the value of your properties increase, you'll be able to sell them for a higher price than what you originally purchased them for. These growths are known as capital gains and can be a great source of income for investors – especially those making a career out of this with multiple properties on the go at once. 

One of the benefits of this type of income is that it can be influenced over the long term. When buying, it's always a good idea to look into the future projections of growth for a region and buy into a market that will see natural rises over the years. Furthermore, doing renovations and increasing the value of the property through additions and replacements of broken or outdated fixtures is another way to influence the value of your portfolio. 

However, the major concern with capital gains is the amount of time needed for results to occur. Naturally, the property market takes years before significant levels of growth can be observed – and even longer before huge profits can be seen. Be sure to factor this into your plans, especially if you're planning on earning capital gains from multiple properties across the region. 

Rental yields

On the other hand, rental yields are a more common and regular income earned from investment property. These figures are often smaller, but more frequent, and are usually the main source of income for portfolios. This is one of the benefits of rental properties, with high-earning investments being apartments and real estate in capital city central business districts and inner city suburbs – where the demand for accommodation is high and the turnover can be fast. 

These investments tend to be lower risk due to the lower capital gains earned from apartments, which could be an encouraging factor depending on how you approach the situation. If you're hoping to secure massive returns during the sale of the property, it could be worth looking into larger detached property in outer suburbs with large growth prospects. 

However, one of the benefits of purchasing property with a high rental yield is the simple fact that as income is generated, the real estate will be able to effectively pay itself off. Soon you'll own your property freehold and be able to pocket all the profits that come from the property. 

Of course, these are just some things to think about before buying investment real estate in Surfers Paradise. Speaking with a professional real estate agent is the best way to gain insight into the local market and seek advice about the moves to make for your portfolio. 

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