Trophy Asset or Cash Cow?

8 04 2010

A question landlords face when buying a property is whether to go for a ‘Cash Cow’ type property or a ‘Trophy Asset’. This jargon basically refers to how the landlord hopes to get paid from his investment:

Cash Cow Properties are properties which have a relatively high rental yield in comparison to the maintenance costs – the mortgage in particular. These properties are generally cheap investments which provide a good nett income each month once costs have been accounted for.

Trophy Asset Properties are those which do not necessarily provide any nett income, they may just break even or provide a small monthly profit. These are long hall properties which all being well will rise in value and give the landlord a high capital gain over the coming years.

So which is the best investment?

Well this depends a lot on what you want out of your property, but at this point in time we are recommending prospective landlords go for cash cow type investment properties. Here’s why:

Interest Is Low: Interest rates are at an all time low right now, and all signs indicate that they will stay relatively subdued for the next few years whilst the economy recovers. This means that mortgages are cheaper than ever before, and they are likely to stay that way. So monthly costs are low.

Strong Rental Market: Because people are struggling to buy at the moment, they are renting instead, this is keeping rental yields strong and vacancy periods short. So a good monthly income is assured from the right properties.

In summary then, right now it is possible to get a good consistent rental income with low costs, and that is likely to remain the case for the time being. On the other hand, property prices have stabilised, but it is hard to say whether they will rise significantly in the next few years.

Our recommendation then? Go for high yield whilst there is the chance to exploit low mortgage rates, build up a good portfolio, don’t rely on prices rising to give you a profit.

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