Your portfolio – 4 tips to top up your capital growth as an investor
Long time Trilogy Report readers will know that I’ve recently appeared slightly obsessed with cashflow. And it’s true; I have been on the odd rant about the need to shore up those investment coffers, to contend with the many changes in the lending winds of late. So I thought I should balance the scales slightly…
Income is logically an important consideration for those who hope to grow a viable and sustainable property portfolio to carry them into retirement. Particularly nowadays, with so much uncertainty surrounding lending regulations and the ready availability of investment credit.
But equally important is the potential for decent capital gains, which is essentially the lifeblood of a solid, residential housing asset base. Without strong and consistent capital growth, you’re sacrificing a large chunk of potential equity.
So you see, both cashflow and capital growth should be sought simultaneously and with equal vigour, as a well-balanced, synergetic relationship between the two will more likely to lead the investor to long-term success.
Now…here are my four ‘take it to the bank’ tips for topping up your capital growth…
1. Seek a strong performer, with low levels of development.
Look for locations where a lot of private and public spending is happening in a bid to boost infrastructure and industry. This type of activity encourages employment opportunities and means more people will be drawn to the region, with a mind to relocate at least semi-permanently.
Logically, more people means greater demand for housing. So the best combination is an area where a lot of new industry is setting up shop, but where housing construction is relatively subdued. In other words, where accommodation demand already does, or will soon, outstrip available supply.
Obvious examples are the more popular and densely inhabited areas of inner city Sydney and Melbourne. Those urban playgrounds for people who like to be close to the action, but where development potential is minimal due to a tightly held land supply.
Of course some developers are taking advantage of the popularity of Melbourne and Sydney, building up rather than out with multi-storey, new apartment monoliths. Leading many industry commentators to suggest that we’re on the brink of a significant apartment oversupply in both cities.
In other words, not all dwellings will have that same scarcity value, even when located in a highly prized property market. So tread carefully when considering this golden rule of capital growth.
2. Go for easy access to what your markets wants
First know your market. Then, know what it is your market wants most. If you are appealing to family buyers, you’ll want to consider areas with appropriate infrastructure and amenity, like schools, access to public transport, parks and recreations facilities and the like.
Don’t underestimate how critical the right amenity is in regard to long-term market appeal, which is what drives capital growth trends. Some people will pay premium prices for homes within certain neighbourhoods, just because of a school and its reputation.
Likewise, if you’re buying an inner city apartment and hoping to lure in young professionals just starting out on the road to independence. They need to be close to employment, transport and places where the vibe is just right for those weekends spent winding down from the 9 to 5.
3. Consider driving off the lot with a new home carefully.
Like a new car, new houses and apartments will often carry developer premiums that are built into the price tag, meaning they can essentially devalue at point of purchase.
And as mentioned above, “new” housing stock these days will more often than not mean those generic, cheap as chips apartments that appeal to investors looking at cracking the inner city postcodes in an affordable way. But that appeal won’t necessarily extend into the owner-occupier market.
And remember – it’s owner-occupiers who dictate long-term capital growth trends for housing. So think carefully about new versus established.
4. Look for a lasting impression.
Buildings with some type of scarcity element that are not your run of the mill, triple fronted brick veneer or single fronted box type structures, will generally hold greater long term market appeal.
Architecture that’s difficult to replicate, such as in the Victorian vein, will naturally increase in value over and above a generic type block of flats for instance.
Keep in mind that it’s not just the aesthetics of the property that need to hold enduring appeal, but the usability of the space as well. And when it comes to real estate values, remember…the market is always right.
About the Author
Since 2008, David Thomas has built a business aimed at servicing the needs of property investors, owner occupiers and small business owners. David is recognised as one of the top 10 independent mortgage brokerages in the country, David and his team have settled almost billions of dollars worth of residential and investment loans over the last decade.
Known for his straightforward, relatable style, David believes by educating people about property funding; they fare better in the market. By sharing his expertise openly, some of the people he educates will likely become his clients. It's a win-win approach.
David Thomas is a credit representative (Representative Number 506153) of BLSSA Pty Ltd, ACN 117 651 760 (Australian Credit Licence 391237).