Investment 101:3 essential factors for achieving capital growth

Growth is the key to making any investment 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.

More often than not, I often hear prospective buyers( first time investors especially) say they are interested in a particular place because “we drive past it every day”. 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.

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.

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.

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 know a guy that bought their first piece of real estate – house and land – when he 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!

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.

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