What exactly does Capital Growth mean?

August 29, 2016
Grace Cumbers

“Capital Growth” is a phrase that means a lot to property investors, but what does it actually mean? Australians are definitely enthusiastic property investors, and there is good logic behind our wish to own a rental property, or to expand an existing portfolio.

A well-chosen property can not only provide regular rental income, but also can deliver considerable capital growth, also referred to as “capital gains”.

Capital growth simply means the increase in the value of your rental property over time. For example if you invested in an apartment 3 years ago for $450,000 and today sold it for $550,000, it has gained $100,000 of capital growth.

There are two reasons capital growth is appealing to investors. Firstly, the money has been earned by barely lifting a finger.

Secondly, capital growth protects your wealth against inflation. If you had stored the $450,000 in a savings account instead of buying a rental property, yes you would earn interest, but the value of the capital $450,000 would remain the same. In relation to inflation, the purchasing power of your cash savings will actually decline over time.

The capital growth of property protects your wealth against inflation.

What sort of capital growth can you expect?

Predicting how residential property will perform in the future is impossible. It’s also important to remember that property value doesn’t continuously rise. The value will fluctuate through dips and stable periods, but the long term trend is for values to rise in a steady manner.

According to figures from research group CoreLogic, over the last ten years property values in state capitals have gone up on average of 5.6% each year. This may not sound like much, but over a decade your property could double in value over a decade. Take Sydney for example; in 2006 the median house price was $356,400 – today the median price is $776,000!

Don’t do it alone – expert help is important and available!

Now you can see the magnitude of gains available in this field of investment, you can understand why investors flock to it. Remember you still need to be able to handle costs of owning your own residential property in the interim.

Contact one of our brokersfor valuable and professional assistance. They will explain how much you are able to borrow – something that will shape what type of property you can invest in, and its location.

Choosing the right investment property loan is also a huge factor, as it will make a difference to your cash flow and the long term returns of your property.

For support, contact us to speak to an expert today, or call us on 02 9358 4855

 

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