What is capital growth??
Capital Growth is the increase in value of your property over time.
It is measured by the difference between the current value, or market value, of your asset or investment and its purchase price, or the value of the asset or investment at the time it was acquired.
For example, you purchased a property for $500,000 two years ago, and it is worth $580,000 today, your capital growth is $80,000.
Land to asset ratio is a critical factor when assessing the quality of an investment property, yet isn’t readily understood by most investors.
The land-to-asset ratio is the proportion of the overall property value made up of the land component. For example, if a property has a purchase price of $1 million, and the land value alone is $500,000, the land-to-asset ratio is 50%.
Knowing the land-to-asset ratio of a property is important because rising land value is the primary driver of price growth, whereas on most occasions the dwelling is depreciating in value.
For this reason, it pays to have an optimal percentage of the property made up of the land value.
From an investment perspective, you should strive to select an asset where the land represents 70% of the value of the property, with 50% as the minimum.
80% location 20% property.
The location of a property has a huge impact on a property’s price growth potential.
The only thing you can’t change about a property is its location. This is why it is extremely important to complete your due diligence and locate the right investment grade property in the right location.
As a good rule of thumb, when it comes to price growth the suburb does 80% of the heavy lifting, and the property itself does the remaining 20%.
If you don’t understand what the “market value” of the property is, then you are more likely to pay too much. If you don’t have the time to do this on your own, this is where a buyer’s agent comes in handy. We know the market well and have a solid understanding of what a property is worth.
We can save you tens of thousands of dollars when negotiating a good price for your property.
Instant equity can be achieved on the way in, this means that you have secured a property under market value, instead of overpaying.
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