Property Wealth, the How’s & Why’s – Part 2
There are many factors and methods of investment that come into consideration when discussing Property Wealth. Part 2 of this series takes a look at Cash Flow & Capital Growth.
Part 2 - Cash Flow or Capital Growth
Investing with a Cash Flow mindset or a Capital Growth mindset can represent different types of property assets. Obviously, the ideal asset produces both value factors, however this is not always the case, and they can be mutually exclusive.
Cash Flow is represented by the location and exposure, its acceptance and useability by prospective tenants, and the ability of that property asset to bring efficiency and profitability to the tenant’s core business.
Capital Growth can also be produced by a factor of location, but in a less immediate sense. Capital Growth can be produced by assets that are on the verge of zoning changes, or on the verge of gentrification. Gentrification can be a reflection that the current improvements no longer serve the needs of that area but that a higher and better use is imminent.
Capital Growth can also be factored into how tenants’ leases are negotiated, including such factors as percentage or turnover rents. In the right location these can produce better than market rent increases annually, which produces strong investment interest and hence stronger capitalisation rates.
Look closely at the following key factors that play into your property assets –
· Location
· Relevance of the current improvement to surrounding areas
· Location of competition
· Location of generators
· Future zonings
· Ease of converting existing structures to alternate uses
How does your property asset stack up?
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