3 essential factors for achieving capital growth

Growth is the key to making your investments work for you and there are three key things that you need to consider when investing in real estate to ensure you achieve the sort of growth you need to make that investment worthwhile.

Many first-time investors fall into the trap of falling in love with a property or buying something that’s in a convenient location for them to keep an eye on, but that doesn’t necessarily make it the best investment.

I often hear prospective buyers say they are interested in a particular place because “we drive past it every day”.

While location is an important consideration when choosing an investment property, your reason for choosing that location is equally important and it’s not all about what is most convenient for you.

The three most important factors to consider if you want to achieve property price growth are location, timing and land content.

Location

Ask yourself: ‘What location will give me the highest capital growth if I buy this property?’

Location is a vital factor in capital growth and the best locations are those where there is demand for rental properties, underpinned by strong projected population growth, good employment opportunities and lifestyle choices (which includes existing and future planned infrastructure).

In short, invest where the population and employment sectors are growing. Two sectors that are large employers are healthcare and education, so look for properties that are within easy reach of hospitals, schools and universities or other tertiary institutions.

If you want your investment property to appeal to families, ensure you also look at what is around it in terms of lifestyle amenities. 

Families want to live in areas where they feel safe, and that also have easy access to schools, shops, public transport, and recreation options. 

Is there a park or playground nearby? A public swimming pool or beach? Sports facilities? In addition to workplaces, Investors should look for good existing and future planned infrastructure (public, private and community).

I also recommend, for the same reasons, that you look at locations that are within commuting distance of a capital city, say, within a 45-minute drive. This also ensures that you have a strong population base.

Another tip is to buy a property priced below the median house price in an area with a high established capital benchmark. In other words, buy the worst house in the best suburb. 

Then you can invest some money in it to bring it closer to the standard of the neighbouring houses, and you should see a sharp increase in the value of your property.

Land content

I can’t stress it enough: land grows in value, buildings depreciate.

Land is the single most important factor for capital growth when investing in real estate. 

Buildings always depreciate over time, while land only grows in value.

Land is a limited commodity, and you need to buy rental properties with a high proportion of land content. The best choice to achieve that is a house or sometimes a townhouse, but not a unit.

Choose something with 30 per cent or more land content.

It sounds so simple but in my experience one in two property investors get this part wrong.

Timing

If you keep waiting for the best time to invest in real estate, you’ll miss it.

There are plenty of experts who will tell you that you should never buy in a boom and only invest during a downturn in the property cycle, but the reality is the best time to buy is when you are ready.

I only bought my first piece of real estate - house and land - when I was 21 years old, but some people don’t start buying for investment until they are in their fifties or sixties. It doesn’t matter, when you start, just do it!

Having said that, the markets do cycle with 60 per cent to 70 per cent of the growth occurring in a two to three-year window. 

Therefore, it’s important to invest in the right markets at the right time.

In addition, different markets cycle at different times. If you’re building a portfolio of properties, it pays to invest in different markets so you can diversify your portfolio and make the most of the different cycles.

In investment terms, time is your friend. Compound growth magnifies a return over time. My advice is to hold onto your investments for as long as you can because this is when time becomes your ally. 

The longer you hold your property the more it will grow in value.