Two simple words – ‘capital growth' are like gold to property investors. We explain what it all means.
It's no secret Australians are enthusiastic property investors. And there are good reasons why so many of us own, or aspire to own, a rental property.
You see, along with regular rental income, a well-chosen property can deliver attractive capital growth, often referred to as ‘capital gains'. Unsure how this can benefit you? Read on.
Property values rise over time
Capital growth, sometimes known as 'capital appreciation' simply refers to the increase in the value of your rental property over time. As a guide, if you invested in an apartment costing, say, $500,000 two years ago, and sold it for $550,000 today, the property would have notched up capital growth of $50,000.
The reason this type of growth is so valuable to investors is twofold. Firstly, it is money you have earned without lifting a finger – and that's always appealing.
Secondly, capital growth protects your wealth against inflation. Think of it this way. If you'd stored $500,000 in a savings account instead of buying a rental property, your money would earn interest but the value of your capital (in this case $500,000) would remain unchanged. In fact, thanks to inflation, the purchasing power of your cash savings will decline over time.
The capital growth of property protects your wealth against inflation.