Capital growth in property is not just a means of building wealth; it is the key. While there are several investment options available, investing in properties that have the potential for significant appreciation allows individuals to not only generate ongoing income but also accumulate substantial wealth over time.
Leveraging off capital growth is a savvy strategy that many investors use to build their property portfolio. When the value of a property increases over time, investors can utilise this growth to their advantage by refinancing or taking out a loan against the increased equity.
This extra capital can then be used to purchase additional properties, expanding the investor's portfolio and potentially increasing their rental income or overall returns. By continuously leveraging off the capital growth of their existing properties, investors can gradually build a larger and more diverse portfolio, maximising their potential for long-term wealth accumulation.
This is the reason why investors who purely focus on cash flow will never make it past one or two properties. Whilst cash flow is important to maintain serviceability, it will not create wealth and financial independence. And without capital growth, you'll need to spend years of saving your hard earned income to put aside for a deposit on your next purchase.
For example, let's take a look at a $500,000 property purchase. Would you rather this property generate $100 of passive income per week ($5,200 per year) with no capital growth, or would you prefer a neutral cash flow position but with 5% capital growth ($25,000 in the first year alone)?
Over a short 10-year period, the cash flow property will generate $52,000 of passive income, whereas the capital growth property will have accumulated $314,000 (compounding annually) of capital growth. I know which one I would prefer!
One critical factor impacting capital growth is population growth. As the number of people in an area increases, the demand for housing also rises. This surge in demand creates a competitive environment, consequently driving property prices higher. Whether it be due to people relocating for better job prospects or immigration, a growing population boosts the value of real estate investments.
Supply and demand dynamics also play a crucial role in capital growth. When the supply of properties is limited compared to the demand, it creates a sellers' market where buyers are willing to pay higher prices. This scenario fosters an environment where property values appreciate at a faster pace, providing investors with favourable opportunities to build wealth.
Moreover, economic prosperity acts as a catalyst for capital growth. When the economy is thriving, businesses flourish, and employment opportunities increase, leading to rising incomes. This increased financial stability allows individuals to invest more in real estate, driving up demand and property values. Consequently, economic factors drive capital growth, providing a profitable avenue for individuals aiming to enhance their wealth.
There are several strategies that can be employed to maximise capital growth in property investment. One approach is to invest in locations with high growth potential, such as areas experiencing gentrification or those with strong economic and employment prospects. Choosing properties in these areas can enhance the chances of achieving significant capital growth.
Another strategy is to make improvements to the property to increase its value. This can include renovations, extensions, or adding desirable features. By enhancing the property's appeal, individuals can attract higher-quality tenants or potential buyers, leading to increased demand and consequently higher capital growth.
It is worth noting that capital growth is a long-term strategy. Property values can fluctuate in the short term, and it may take several years to see substantial growth. Patience and a long-term investment approach are crucial when aiming to build wealth through property.
In conclusion, capital growth in property is indeed the key to building wealth. By investing in properties that have the potential for significant appreciation, individuals can accumulate wealth over time. However, it is important to research and carefully select properties and employ effective strategies to maximise capital growth and achieve long-term financial success.
If you are looking for a buyer’s agent to assist you with purchasing a home or investment property in NSW, QLD, VIC, SA or WA, please get in touch the team at Ready Set Buy - Property Buyer's Agents or give us a call on 1300 289 372!
Disclosure: The information contained in this blog is our personal opinion only and is not to be taken as financial advice, as we do not know your financial situation. Please speak with your accountant or any other licensed professional for specific advice based on your own personal circumstances. We will not be held liable for any losses.