Commonalities that EVERY capital growth property shares

By: DavidPage

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However, when you take into account the capital growth that you will get from a well-located asset, the overall returns can be very high, especially in today’s low-interest rate environment.

This capital growth isn’t subject to tax unless you sell your property. Why would you? This allows you to reinvest your capital and generate higher compounding returns.

Good location

Real estate professionals have tried to get us to believe this old saying for many decades: location, location and location.

It’s possible to renovate a kitchen or landscape a garden. You could even tear down a horror home and build two new homes. But you can’t change the place.

Scarcity factor

Rare or difficult items are more valuable and often have greater competition.

Investors looking for high capital growth will be pleased to know that it’s a classic supply-demand relationship.

A 10km radius from the CBD is an example of real estate scarcity. This means that land is more expensive per square metre than apartments, and there is a high supply of apartment homes.

Another prime example is the homes in catchment areas for high-performing schools – these suburbs will always have more potential buyers than available homes.

Potential for strategic renovation

Many investors have wasted their money on improving rental properties.

Strategically renovating a property to maximize its rentability or resale value is one way to “manufacture” capital growth.

Bathrooms and kitchens are at the top of this list. They can instantly add value to even the most basic property.

Keep it simple and timeless, rather than focusing on trendy looks. Don’t spend too much money on fixtures and fittings.

High land-to-asset ratio

The Land to Asset Ratio measures the amount of property that is made up of land.

If a property has a value of $1 million and the land is valued at $600,000., the Land to Asset Ratio would be 60%.

The land component of a well-located property will appreciate in value over time, while the dwelling will gradually decrease in value.

But I am not referring to the size of the land.

I would rather have a semi-detached house on a small piece of land in the inner suburbs or Brisbane than a 10-acre rural farm in New York.

It’s not the land size that is important, but the location of that land. Capital growth is driven by scarcity.

Development potential

A property should be able to be developed, whether it is the possibility to expand and modernize the property or subdivide it.

This criteria will ensure that the property appeals to many buyers, regardless of whether you intend to develop it. Owner-occupiers will love the opportunity to build a large family home while investors will be attracted by the generously-sized block with the possibility to develop three townhouses.