Consistent Capital Growth

Good capital city residential property has an unequaled track record of producing high and consistent capital growth.

Over the past 45 years, the value of the average property in Melbourne and Sydney has doubled in value every seven years or so.

However, in the short term, the picture is much more uncertain and confused and at times capital growth stops and even reverses for a time, as we saw in the early 90s and in the slump of 2003- 2006.

In all Australian capital cities, this growth has averaged just under 10%, compounding each year over the last 25 years.

These are just averages.

The better your property selection - where you buy, what you buy, how well you negotiate, and how you financeyour property investment- the better your returns could be.

By the way, that's another great thing about the property.

You can outperform the average by researching areas of strong capital growth, by buying your properties below market value and then adding value, which increases your capital growth and rental return.

If a property increases in value by 10% per annum (averaged out over a number of years) then the value of that property doubles every seven years.

Imagine you owned a property worth $700,000.

In seven years' time, the same property would be worth $1.4 million and in 14 years it would be worth $2.8 million.

When you own a property worth $700,000 usually have some equity or your deposit and you borrow the rest. Imagine you had a 20% deposit and borrowed the balance ($560,000) from the bank.

After seven years you would still owe the bank $560,000 (assuming you had an interest-only loan) and your net worth would have increased from $140,000 to $840,000 (the value of the property $1.4 million dollars less your mortgage of $560,000.)

That's an increase in your net worth of six-fold even though the value of the property only doubled.

What would happen over the next seven years?

Your property would once again double in value to around $2.8 million and your net worth would increase to $2.2 million dollars.

Your initial $100,000 investment would have increased in value 16-fold while your property only increased in value four-fold.

This amazing increase in your net worth is due to the combined effects of compounding and leverage.

RealRenta has all the tools that a property manager has but for less than ¼ the cost of a property manager.

You can now manage your Residential, Commercial or share/student accommodation property

Join now and the cost is less than a cup of coffee a week to manage your rental property.

RealRenta also has a free vision, so why not check it out.

Jason Gwerder
Thursday, 1 February 2024

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