The Benefits of Property Investing for Capital Growth

There are two key strategies in property investment – rental yield and capital growth. A capital growth strategy involves buying property that is expected to produce above-average increases in value over time. With historically low interest rates and property values which are expected to continue rising, this strategy can be the ultimate long term wealth creator.

Property represents a stable, tangible asset that can generate significant wealth over time. Due to large entry and exit costs, you’re more likely to think twice before selling. This encourages you to ride out any price fluctuations unlike shares, where you can be spooked into selling following a large drop in price.

Negative Gearing Benefits

Capital growth investment properties tend to have a higher purchase price and lower rental yield. This makes them negatively geared, meaning the annual cost of your investment is more than the return. As a result, investors often need to subsidise their investment using their income or savings.

However, you can make deductions or claim other tax benefits for these losses and out-of-pocket expenses. Unlike a rental yield property investment strategy, you’re likely to find yourself paying much less income tax.

Using Property Equity to Build Your Investment Portfolio

Another key benefit to a capital growth property investment strategy is that it enables you to generate positive equity and grow a portfolio faster. This means that as your initial investment property value increases, you may be able to borrow against it to purchase further investments and build more wealth.

Where to Find High Performing Properties

Properties suitable for a capital growth strategy are typically found in capital cities and areas in the process of growth and development. Property is booming in Melbourne thanks to our rapidly increasing population, with around 100,000 more people looking for somewhere to live each year.

At Noel Jones, we’re seeing rapid growth in Melbourne’s eastern suburbs for this reason. Both inner and outer suburbs are recording high levels of annual growth, with some of the top contenders including:

  • Blackburn North – 12.7%
  • Blackburn South – 13.8%
  • Camberwell – 9.5%
  • Doncaster – 13.1%
  • Mitcham – 10.5%
  • Wantirna – 10.7%

These new residents consist largely of families who are looking for affordable housing close to schools, shops and transport. Suburbs meeting those demands, like those listed above, are therefore growing at a fast pace.

Is a Capital Growth Strategy Right for You?

For many investors, the choice between a capital growth or rental yield investment strategy is a difficult one to make. You should take your individual circumstances into account and consider factors such as your:

  • Tax position
  • Marital status
  • Financial objectives
  • Cash position
  • Mortgage options

If you only want one investment property, then a capital growth investment strategy might be appropriate. But some people simply can’t afford to have multiple negatively geared properties, meaning it would be better to target high yield properties in order to grow their portfolio. On the other hand, fluctuating interest rates can threaten returns, making a rental yield strategy more risky.

Remember that the property needs time to accumulate value in a capital growth strategy, meaning any financial return on the property can only be realised when it is eventually sold. The rewards however, are significant, which is why these properties are typically more expensive and in higher demand.

If you’re thinking about purchasing an investment property, get in touch with one of our agents for assistance. If you’re thinking of renting out your property, we can give you a free appraisal.

Share:

More Posts

Settling on a strategy for property investment success

Global markets have been thrown into disarray by the coronavirus pandemic, as investors’ thoughts turned from prosperity to survival. While Australia’s share market remains turbulent, the property market has defied 2020’s dire predictions and is thriving. The value of dwellings has swelled 13.5 per cent over the past year according to the latest CoreLogic Home Value Index figures. The growth

June Quarter Market Update

There has been no hibernating for Melbourne’s housing market over the June quarter, with the median house sale price tipping over the million-dollar mark to $1.01 million. While this only represents a 0.2 per cent increase in the last quarter according to recent Real Estate Institute of Victoria (REIV) figures, this follows a record 8.8 per cent growth in the

Sound strategies for winning an auction

You could call watching an auction in Melbourne a much-loved sport. As the preferred selling method, there are a few factors to consider before you let your heart take over and bid above your budget. Unfortunately, bidding at auction isn’t an exact science; there are many methods, and every auction is different. If you are planning on bidding, you’ll stand

Why landlord insurance is a sure-fire win

Taking out insurance is a lot like buying a lottery ticket, with both decisions steeped in possibilities and ‘what-ifs’. However, when it comes to investment properties, landlord insurance is a wise gamble. Landlord insurance is designed to cover the cost of replacement or repair if your residential rental property is damaged as a result of certain events. This type of

Send Us A Message