In today’s inconstant market environment, gloomy economy, high-interest rates, liquidated building companies, commodity prices increase, and instability in general, we need to think about two questions regarding where we go about property investment.

It should be taken into account before any purchase or any other investment.

Do I have an exit strategy?
Do I have a reasonable yield?


Exit strategy

We always aim to hold the property long-term to create a net asset that can give us monthly income and equity to leverage from. However, at some point, you will consider selling for profit, covering your other loans with a successful sale or whether your situation changes.

If the growth rate is only 1.5% yearly for a $400,000 purchase price over 10 years, I might want to consider keeping my money in the bank in term deposit and gaining 3% or investing in other channels that can give me a better percentage.

The average capital growth for $400,000 on a 1.5% growth rate is $6,421.63, and the capital growth over the lifetime of the 10 years investment is $64,216.33. Property value in 10 years will be $464,216.33

Most average properties won’t give us enough capital growth or good rental return to justify the investment. Over 20 years, we won’t have significant capital growth to sell with a good profit. We must pay almost 50% CGT, leaving us with insignificant profit.

After 20 years with $400,000 purchase price, we will achieve an average growth rate of $6,937 per year and $138,742 capital growth for the life of the investment. The property value will be $538,742

If we work it out based on 80% LVR, we paid $80,000 and borrowed $320,000

After 10 years, we are still in a loss of $15,784 ($64,216-$80,000)

After 20 years, we will profit $58,742 ($138,742 – $80,000); let’s take 50% for CGT and stamp duty (~$15,000), and the profit will reduce to $14,371.

To make 14k on your investment over 20 years, it’s pretty poor, better to hold it longer or offset the “loss” with significant investment.

I didn’t mention mortgage repayments over the life of the investment and, in most cases, paying out of pocket to hold the property (after fees, maintenance, Special Levis and vacancy period).

Those numbers change when we change the growth rate to 4% – 5%, or more. Some asset classes and suburbs cycles were 50%, 88% or even more, which is starting to make sense.

$400,000 with a growth rate of 6% creates after 20 years a $1.28m assets that, even with the CGT, duties and other miscellaneous property costs, makes more sense to sell or use the equity for leverage.

Of course, nobody holds a crystal ball to pre-calculate the investment results, but we should focus on thorough research and be informed about all the aspects of the property before the purchase to ensure that we buy well and can use an exit strategy.

Will you profit from the sale? 

Will the asset class be a demand product?

Will the property configuration and layout have much competition?

Will you gain equity?

Will you make a reasonable income? 

Some Points to investigate: 

  • The economy of the location
  • Asset class
  • Property Configuration
  • Distance from a major Centre or point of interest
  • Jobs that associate with the suburb
  • Position on the ground (if houses)
  • Easements or any obstacle that can cause future damage
  • Property layout
  • Supply/Demand – new properties in the pipeline
  • New Infrastructure or renewal forecast (but as the last option and only if the above were investigated)

Houses or lands on average in specific locations, of course, outperform the average, however a lot of glamour units or “small houses” near the CBD, near water locations, or those with luxurious selling points took many buyers for a long journey of dreams and faith, didn’t do so well, and after 10 -15 years are still in unfavourable growth and out of pocket loss every year even after tax.

Those properties with negative growth are also the ones that are hard to sell due to extreme oversupply and lack of demand with the property, the location, the layout or the configuration. We will probably need to discount a lot so that we won’t benefit from the capital growth gains.

Unfortunately, we couldn’t predict the future, and shiny marketing or false statistics were more robust than us, but we should always try to mitigate the risk and be more informed. 

Independent third parties, such as Buyers’ advocates, should be included. Although the commission seems high, it will be almost nothing if we reduce the risk and achieve significant long-term growth.


Some of our investors chose a long-term investment strategy with a clear mind that the rental yield would be poor for half or more of the life of the investment, but percentage-wise, the growth strategy gives them much more.

Others preferred to be stable with their monthly or yearly cash flow. (Easy holding costs) with good but more modest growth.

It’s a tough one, as most of the properties in Australia don’t have an excellent rental yield.

Some of our Real Estate colleagues or property professionals will disagree with that statement. And it’s clear and also advertised that some of the assets offer 4-5% or even 6% rental yields. High rental is a good sale point, but is it the entire story?

Well, if you buy a solid house without a lot of maintenance and relatively new or renovated, with a 5.5% rental yield / $430 per week and an affordable purchase price of $400,000, for instance, you might stay balanced every month or with a small out of pocket only, include the Council fees, water, Landlord, building insurance, management commission at the EOFY.

Strata products in general will take more of your profit which you can’t stay positive due to the high strata costs and building maintenance.

In 30-35 years, if you have time to wait, the rent probably will be high enough to give you an excellent yield, and if you pay off your mortgage, you will also create a net asset.     The question is how much you lose over the life of your investment after it changes to a free debt asset.

This situation changes over the long run after rent goes up. We experienced it over the past two years when the rental yield of 4%, for example, became 7%; interest rates were also growing, but still, some with the right property attributes could increase their cash flow.

When you invest in properties, shares, or close-term deposits, you don’t want to pay for it if it is not giving you money from another venue, Capital growth in our case.

The advertisement 4% or 5% rental yields in Real estate or the brochures are only made-up figures.

In reality, you have a period of vacancy, e.g. no tenants, special Levis, Council, water and strata cost if this is a unit, marketing fees, admin fees, rental renewal and property management commission, which take the figure down to 2%.

If you load the mortgage repayment on top of the operation cost, the net rental yield or the return on the investment monthly or yearly will be negative in most cases.

Deals with 3 -4 % NET yields will be attractive as a cash flow avenue.

Our children will keep enjoying the cash flow and probably the far future capital growth.

It’s rare to catch a cash flow deal in Australia and worldwide, but we can always mitigate the cash flow risk through research.

The point mentioned above for capital growth is valid for cash flow.

For example:

  • Buying a 4-bed house will probably attract families that will stay longer, and we can save on vacancy periods.
  • We can aim for slightly higher rent and less maintenance if we choose better conditions.
  • Same with Layout; some layouts are not very attractive for families and singles, so you might replace your tenant every 6-12 months, which will cost you the lease renewal.
  • Same with the car park – no car park will limit the applications.
  • Distance from CBD or the beach from instant – will be a better attraction and higher rent.
  • A new train station will attract many applicants and higher rent.
  • Choose the proper configuration that associates with the suburb demand to gain better returns and fewer vacancies.
  • Position on the ground, more back garden, safe and more room for family time and play.
  • We can add cosmetic renovation to increase rent.
  • We can add a granny or build a duplex to stretch the rental income.

There are many creative ways to create cash flow and avoid paying out, such as high Strata costs. But most vital for us when we need to generate the cash flow with what we have is to find areas and asset classes that will associate with low cash flow risk, i.e. higher rent relatively, in-demand, higher owner occupiers vs invests ratio, smaller complexes or stand-alone, low percentage of new properties in the pipeline and more.

Proper Research is critical, which leads to capital growth and cash flow.


The ultimate investment will generate dividends or monthly income for you. You might also want to combine it with solid capital growth with low equity risk to give you a clear exit path when needed.

There are many considerations, and you always need to choose a strategy that aligns with your life circumstances and financial ability; However, don’t get a Real Estate product just for the sake of holding for the long run with hope for the future change, never hope; always do your research.


Please contact us by email or via the contact form if you have any questions. We will be happy to brainstorm, receive further thoughts or questions and help some of you with the next substantial investment.