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How To Estimate Capital Growth


Succeeding in the world of property is often linked to forecasting an increase in the value of your abode over time, which is otherwise known as capital growth. 

While home ownership is generally considered to be one of the key pillars to wealth generation here in Australia, which path you opt to take as a means to get there is entirely up to you. Although the “Great Australian Dream” of owning a three bedroom house in the suburbs is either unviable or out of reach for many, properties of all shapes and sizes can still translate into a savvy investment. 

Aside from the regular rental income that an investment property can generate, a well-chosen purchase can also deliver some pretty attractive capital growth. Often referred to as capital gains, it’s this level of top tier appreciation that most property investors hold as the gold standard – but what is it, and how is it calculated?

A Beginner’s Guide To Capital Growth 

When you invest for capital growth, you’re aiming to make a profit from the sale of your asset. In the world of property, this means that you’re relying on the market to ultimately swing in your favour. 

As a general rule, capital growth is all about buying a property for as little as possible, then playing the long game to sell it for a significantly higher amount further down the track. As property values almost always increase in price over ten or even twenty year periods, many call this a “buy and hold” strategy. 

However, the amount of time you wait depends on your strategy and the market. Those looking for short-term gains might sell in five years, while others looking to maximise their capital growth may “hang onto” a property for as long as twenty or thirty years. As an example, if a property is purchased for $300,000 ten years ago and it is now worth $500,000, then the savvy buyer has managed to achieve a whopping $200,000 in capital growth. 

While earning a small fortune without lifting a finger may sound appealing to many, capital gains can be tricky to predict. As the final figures are largely driven by market sentiment, It is important to note that your total capital gain growth amount will change each year as the property value changes. 

To get an estimate on capital growth on your current property or an abode you have your eye on, a reputable real estate agent should be able to produce relevant data over the last five years for homes similar to yours, and in the same neighbourhood. For a quicker solution, there are also a wide range of calculators available online to use as an estimation tool, although they may not be quite as accurate. 

When you sell the property, don’t forget that you will have to pay tax on your capital growth as well as your annual cash flow surplus that may stem from rental rates. This also doesn’t include depreciation and taxation benefits, which can increase the annual surplus and thus increase your tax amount when selling.

If you’re weighing up which type of mortgage or investment loan is right for you, it’s worth speaking to the professionals first – particularly if you have other loans already tied to your name. Not only are reputable mortgage brokers highly specialised people who know the ins and outs of loan products, but they can also help to guide you on what the preferred option is for your own individual set of circumstances – but where do you find one?

Your Guide For Navigating The World Of Home Loans 

With a background in banking, finance, business development and project management, there’s no better advocate to have on your team than Nikki Berzin. As a fully qualified mortgage broker and director of Cherry Lending & Finance, Nikki is passionate about all things finance, and empowering her clients with the tools to hit their property goals is what she does best.

If you’re looking to get into your first home, purchase an investment property or even want to look at your options for refinancing, the first step is starting the conversation. Get in touch with Nikki today, or call her directly on 0427 374 155 to bring your mortgage dreams to life.

Disclaimer: Your full financial needs and requirements need to be assessed prior to any offer or acceptance of a loan product.  Subject to lenders terms and conditions, fees and charges and eligibility apply.

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