Best of both worlds - the cities where you can find capital growth and cash flow: Terry Ryder

One of the specialist property magazines, for lack of an original idea, is featuring what it calls “the age-old stoush” of capital growth v cash flow.

This recurring theme in property media – whether you should buy for good capital growth or for good cashflow prospects – shows a fundamental lack of understanding.

Investors do not have to make that choice. A good property investment will provide both.

There are myriad opportunities around Australia to secure properties that pay their own way and are located in areas with the core drivers to deliver good capital growth as well.

Currently, the best income yields in the nation are found in Cairns. The days of double-digit yields in mining towns and resources-driven regional centres are over, for now at least. Cairns, meanwhile, can readily provide investment properties with gross yields in the 7-8% range.

Cairns is also a strong prospect for ongoing capital growth. The North Queensland centre has a poor record but in hotspotting the recent past is irrelevant. The future is another country.

Cairns’ future will be different from its past because there is fundamental change taking place in the city’s economy. Like others including the Sunshine Coast and Port Macquarie, Cairns is re-inventing itself, so that it is no longer just a tourism town.

Tourism-based economies are fragile and habitually bad real estate performers. It’s only when economies diversify through infrastructure spending and creation of new industries that their real estate performance improves.

Cairns is undergoing that process. There is major spending on infrastructure, city leaders are working hard to encourage economic diversity and, as a bonus, tourism is thriving again.

In New South Wales, Dubbo is one of the strongest regional economies. It offers an attractive package for investors: affordable property with good rental returns, underpinned by a growing population, a strong economy with diversity and plenty of jobs generation.

It’s not too hard to find houses with returns above 6% and the median house price has increased 10% in the past year. In other words, good cashflow and good capital growth is on offer.

At the Victoria-NSW border, Albury-Wodonga is one of the nation’s most important regional economies, underpinned by a strategic location with strong road, rail and air links. Houses are typically priced in the $200,000s and rental yields in the 6-7% range are common.

In the past 12 months, many suburbs including Lavington, North Albury, West Albury, Wodonga and West Wodonga recorded median price growth of 8% and above.

There are myriad examples in regional Australia. Toowoomba and Rockhampton in Queensland, Tamworth and Goulburn in NSW, and Bendigo and Ballarat in Victoria, are all strong growing cities that offer the desired combination of good cashflow and superior growth.

It’s a formula that can also be found in capital cities. Brisbane and Adelaide will be among the growth leaders in 2015 and both present options for investors seeking the best of both worlds.

In affordable Logan City, the municipality the bridges the urban gap between Brisbane City and Gold Coast City, eight suburbs have recorded median price growth between 8% and 13% in the past 12 months.

There are also a dozen suburbs with median rental yields in the 5.7% to 6.7% range.

The most compelling location in Adelaide, in terms of 2015 growth prospects, is the municipality of Salisbury in the city’s north. This is an area with good infrastructure and lots of major job nodes. Most of the LGA’s suburbs have median prices below $300,000, with typical yields in the 5.7% to 6.5% range.

Virtually every suburb in this precinct has shown some sort of capital growth in the past year, with more to come in 2015.

The question occupying the minds of property investors is not whether they should chase capital growth or cashflow, but which of many available options should they choose to achieve both.

Terry Ryder is the founder of hotspotting.com.au. You canemail him or follow him on Twitter.

Terry will be participating in a webinar on 'The Best and Worst for 2015: Top 5 Hotspots and 5 Places to Avoid' on 3 February.