Capital growth, also known as appreciation, is the increase in the value of an asset over time.
It is one of the main reasons why people invest in properties, as they can enjoy the benefits of capital growth in the long term.
But why do we need capital growth? What are the advantages of investing in capital growth properties?
And how can we find them? In this article, we will answer these questions and more.
The Benefits of Capital Growth
Capital growth can provide several benefits for property investors, such as:
Increasing your net worth
Capital growth can increase your net worth by adding value to your assets.
For example, if you bought a property for $500,000 and it appreciated by 10% in a year, you would have gained $50,000 in capital growth, which would increase your net worth by the same amount.
Generating passive income
Capital growth can generate passive income by allowing you to refinance your property and access the equity.
Equity is the difference between the value of your property and the amount you owe on your mortgage.
For example, if your property is worth $600,000 and you owe $400,000 on your mortgage, you have $200,000 in equity.
You can use this equity to invest in more properties, create a cash buffer, or fund other goals.
Reducing your tax liability
Capital growth can reduce your tax liability by lowering your capital gains tax (CGT). CGT is the tax you pay when you sell an asset that has increased in value.
However, if you hold your property for more than 12 months, you can get a 50% discount on your CGT.
For example, if you sold a property for $700,000 that you bought for $500,000, you would have a capital gain of $200,000.
If you held the property for more than 12 months, you would only pay CGT on $100,000 instead of $200,000.
How to Find Capital Growth Properties?
Capital growth properties are properties that have the potential to increase in value over time.
They are usually located in areas that have strong demand, limited supply, high-quality amenities, and future development plans.
Some of the factors that can indicate capital growth potential are:
Population growth
Population growth can drive up the demand for housing and push up the prices.
You can look for areas that have high population growth rates, positive migration trends, and low vacancy rates.
Infrastructure development
Infrastructure development can improve the accessibility and livability of an area and attract more buyers and renters.
You can look for areas that have planned or ongoing projects such as roads, railways, airports, schools, hospitals, and shopping centers.
Economic activity
Economic activity can create jobs and income opportunities and boost the purchasing power of the residents.
You can look for areas that have diverse and growing industries, low unemployment rates, and high income levels.
Lifestyle factor
Lifestyle factors can enhance the appeal and quality of life of an area and influence the preferences of the buyers and renters.
You can look for areas that have natural features such as beaches, parks, lakes, or mountains; cultural features such as cafes, restaurants, bars, or museums; or social features such as schools, clubs, or community events.
