For this reason, a lot of investors will consider the capital growth of the investment first and foremost, finding properties with potential to outperform market returns over a longer period of time.
It is surprising how many people spend too much time researching mortgages to save a few dollars a month, rather than spending that time on researching their local real estate market where much bigger gains can be had. So, what do these investors need to look for to maximise their capital growth?
Location, Location, Location
Most property experts will tell you location is one of the biggest factors at play when identifying and purchasing a property for capital growth.
Properties located within a desirable school zone, and those close to public transport links and local activity or employment centres are more likely to attract the interest of future buyers, renters, and developers.
With an increasing number of tenants and buyers seeking areas that meet both their work and social needs, transport time to daily activities is also playing a key role in determining the value and demand in these areas.
Savvy investors will consider properties that leverage on local accessibility, as these investors generally increase their capital growth in the long term, whilst managing their shtor term risks.
Condition Of The Property
When purchasing a property for capital growth, investors need to consider the condition of the property itself. Properties that have undergone recent renovations are likely to achieve higher rental yields and future sale prices.
Investors will also need to take into account the extent and quality of the renovation – was it a low budget project that will require further work in the future or a high-quality renovation built to last?
Likewise, if investors plan to purchase a low value property with potential for renovation, they will need to consider the potential costs of the required renovations.
The worst thing a buyer can do is purchase a property that requires significant structural renovations which are outside the scope of their budget and won't see the financial return they are after.
Suburb Infrastructure
Investing in a property for capital growth isn't just about looking at existing amenities, it's also about looking ahead.
Are there any up-and-coming developments or planning policies likely to influence the future value of your investment property?
Upcoming developments and planned density increases are key triggers for commercial and residential growth and can have a huge impact on the value of housing. The astute investor will research and understand how developing infrastructure will impact the value of their investment property in both the short and long term.
Finding a property with future infrastructure mapped out can significantly improve capital growth prospects; however, be careful when "gambling" on proposed projects that are yet to be formally approved by the relevant parties.
Market Conditions
Current property market conditions can have a huge impact on the value of an investment property both at the time of purchase and at the time of sale.
Investors seeking a property with long term growth potential will need to consider how the local property cycle will influence both the current and future value of their investment property.
Purchasing a property in a subdued market can have huge benefits for investors seeking to make the most of capital growth. This allows the opportunity for investors to purchase a property below market value before profiting from increasing housing value as the market heads towards recovery.
The Right Financing
Before purchasing a property for capital growth, investors need to consider how they plan to fund their new investment. There are many options when it comes to financing your investment property, so get sound advice in this area as it can make a big difference to your financial well-being.
As opposed to properties with high rental yield potential, capital growth properties don't always bring immediate returns. Often, these properties will be negatively geared, meaning investors need a way to cover their expenses and finance their investment venture in the short-term.
Referencing back to the mention of short term risk in the benefits of purchasing based on location, choosing the right type of loan structure is key to ensuring investors cover their short term costs, and create a secure foundation to build their property portfolio and see more gain over the long term.