The reason we invest in property is because we want financial freedom, and there are two ways in which you can make money property; capital gains and a regular cash flow income.

We’re often asked, which is best?

Well, as always, it depends on your financial situation, and what your plans for the future are.

Understanding the two types of investment income you can get from property will help you decide on your strategy and which one will work best for you.

Capital gains

This comes into play when you sell your investment property, and is the amount of money you have in the bank, minus the original purchase price and all associated costs, such as marketing and conveyancing fees.

You can potentially increase your capital gain by improving the property with renovations or extensions, but you will need to consider whether the cost of the improvement will add sufficient value to the property to cover the renovation cost and give you something left over.

One thing you do have to consider with capital gains, is capital gains tax. The capital gain on an investment property, is taxable, and is payable in the financial year in which you sell or dispose of your rental property.

Plus, once the property is sold, you obviously will lose any income you receive from it.

Many investors avoid selling unless they absolutely have to, and to use capital growth (ie the increase in the value of the property while you still own it) to grow their portfolio; that way they don’t have to worry about capital gains tax, or sell an asset.

Find out more about capital gains tax, and what you need to consider in our blog post here.)

Cash flow

This is the money in your back pocket when all regular ongoing costs are deducted from all regular income (rent).

You are legally allowed to increase the rent at regular intervals, and it is possible to increase the rental value by improving the property.

Like any other income, the income you receive from your investment property is taxable and will need to be declared on your tax return.

How you use the income is up to you. Some investors use the extra cash to pay down the mortgage, or put it towards other investment properties or investment opportunities, while others pay extra into their super funds, or simply use it to supplement to their income.

It’s worth noting too, some properties will make good capital gains over time, while others will give you a very nice residual income, but may not increase too much in price. The key to property investment is to think long term.

So perhaps the best strategy is one which gets the best of both worlds by securing both growth and positive returns in the long term.

We always encourage investors to speak to a financial specialist who can advise on what to consider for your personal financial circumstances.

Once you’ve bought your investment property, get in touch with us to see how our property management services can make your life easier and free you up to do more of the things you want to do.

We’ve helped thousands of people realise their financial dreams through property, and we’re always looking at ways for you to get the best from your investment.

Simply give us a ring on 02 4954 8833, send us an email to mail@apnewcastle.com.au or drop into our Cardiff office for a chat.