Ask any property developer what makes a good property investment and the ones that have been around a long time will always tell you to focus on the income rather than the capital.
So what does this mean?
Well when real estate is on its knees as it has been for the last here or four years now, a solid rental is far more important to you than a rising capital value. In short, capital values aren’t going anywhere. So let’s say you bought at the absolute peak of the recent property boom right at the end of 2006 or maybe in early 2007 – still long before the Lehman’s collapse – and at a time when people still seemed to think property was a one way bet.
If, at that time, you concentrated solely on the income the property would be likely to continue to provide through the good times and the bad and you weren’t thinking; “I’ll make a quick buck here as it’ll be worth half as much in again in a few years’ time,” then you’re probably doing OK.
Sure, the value has probably fallen along with everything else – but your focus is on the yield right?
Sadly, this isn’t what most people did and the bubble was a bubble like any other; irrational in other words. The long and short of it is that the yields didn’t make any sense back in early 2007, so following the principle of focussing only on the income rather than the capital would have safely ruled you out of any overly optimistic bubble-related irrational purchase. You wouldn’t find David Lichtenstein or any other savvy real estate developers buying around the peak – they knew it didn’t make sense; all they had to do was look at the percentage income figures and it was a case of “no thanks!”
