The Difference Between Growth and Yield

Let’s start with the basics:

Growth: Growth refers to how your property’s value increases over time.

Yield: Yield is the money you collect from the property through rent.

As you can see, they are two very different ways of earning money from your investment. In most cases, high growth properties produce low yield, and high yield properties provide low growth. It can be very difficult to find a property offering both, which is why understanding your goals and objectives is key to finding the right investment property. It will determine whether you experience high growth and low yield or high yield and low growth.

Your Timelines in Determining Growth vs Yield

Your timelines are very important when determining which strategy will work best for your needs. Generally, in the case where you are closer to retirement, you are best off looking for a property offering a high yield. This is because once you invest your money, your property will continue to produce high yield rent right from the start, which contributes to your income throughout your retirement years.

However, if you are younger and aren’t dependent on that money in the short term, you have the luxury of finding a property that will see more growth. Of course, there are always unique scenarios that also contribute to your strategy, which have to be considered in detail, including your budget. When you find the right property, over time, it will see impressive growth organic, naturally increasing in value thanks to simple supply and demand principles.

Why Not Both?

You might be wondering why you can’t have both. This is a question we asked ourselves. We were happy we found the answer is you can, as long as you have the right strategy and timelines. The trick is to find a property with high growth that also offers what we call “upside.” Upside allows you to increase the value of the property by manufacturing growth through either development or renovation. Again, it is challenging to find a property offering both, and the timing of your goals and objectives is very important when trying to find a high growth, high yield property. Therefore, the sooner you look at investing in property, the more opportunities there are to benefit from both growth strategies both.

How to Increase the Asset Value

This is where it gets challenging. Finding a property that can increase asset value requires a keen eye first for the potential for what we call “organic growth” and second for what we call “ manufactured” growth. Organic growth is the natural increase in a property over time. In almost all cases this happens, but it is the rate of that growth and the value potential that varies. So to increase the odds of a property outperforming the averages, we focus on a location where properties are in demand but will face limitations in increasing supply.

In hand with the right demographics in an area with wealth to invest in those properties, you create the perfect storm to see your property outperform other areas. This is because limited supply increases demand, which in turn forces prices up. So your organic growth happens faster and for a more impressive amount. Next, you want to find an upside opportunity where the property is larger so you can develop more homes or offer renovation opportunities to increase value.

Understanding your goals and objectives helps you choose whether you should focus on yield or growth. Although there are very rare cases where dumb luck allows an investor to stumble upon a high yield, high growth property, the law of averages is against you. Data-driven research and feasibility tests are the best way to find the ideal property offering both.