Mistakes investors make when looking at rental yields

Investors who are too focused on high-yielding properties could be limiting their long-term profit potential.

Inner city investors give too much weight to the importance of rental yield at the expense of chasing good capital growth. Remember that with property, you're really only going to get the big bucks if you lock in good capital growth. Rental yields in the long run isn't so much of a consideration. So what you really want to find is a property that's got a reasonable rental return, because of course you want to pay the bills as you go along the way, but a property that offers good prospects for capital growth. An example of what not to buy perhaps would be something like a small studio on a major arterial road. Now it may be yielding in excess of 5% per annum but your capital growth is probably not going to blow you away. Conversely, a really popular two bedroom unit that ticks everybody's boxes because it's got a balcony, a lock up garage, it's in a small boutique block, it's within 5 - 10 kms of the CBD. That's something that's probably got a lot more universal appeal and therefore better capital growth potential.