Question from Anna updated on 5th July 2019:
I have been hearing lots of different opinions on whether you should invest for capital growth or invest for positive cash flow. What do you think is the best strategy - & why? Or do you think it's best to do a bit of both?
Our expert Kris Pedersen responded:
I think in most cases capital growth creates more actual wealth. However, the cash flow component can't be avoided as I have seen many capital growth investors put in forced sale situations due to not focusing on that part enough.
Ideally, using a combination of strategies can work well. Many investors focus on three to four regional investments which can achieve higher returns and then use this to offset some of the negative cash flow component of a capital growth property in an area like Auckland.
But note your personal position is very important here as well. If you have a high (and secure) income it might be okay to focus on some capital growth properties, whereas if your income is on the low side this could be dangerous.
Kris Pedersen of Kris Pedersen Mortgages is a commentator on property and finance. His team sources top finance strategies. www.krispedersen.co.nz