Capital growth refers to the increase in the value of a property over time. For example, if you bought a property for $1 million and sold it five years later for $1.5 million, the capital growth would be $500,000.
When researching potential capital growth in your desired suburbs, we often refer to the average capital growth alongside the median price. The median price indicates the average cost of a property and reflects the market's movement.
However, focusing solely on the median price can be misleading. It represents only the midpoint, meaning half of all properties outperform the median price growth, while the other half fall short. By purchasing a property that underperforms median price growth, you risk missing out on significant capital growth potential.
For example, consider Ellie and Eddie, both of whom bought properties for $5 million in Mosman. After five years, when the median price had risen to $5.5 million, Eddie sold his property for $5.3 million, while Ellie, who researched her purchase thoroughly, sold hers for $5.7 million.
It all boils down to property selection and evaluating potential capital growth.
So, how can you evaluate capital growth and what factors should you consider before buying?
Firstly, capital growth assessment should be objective. Leave emotions and wish lists aside and assess each property with clear judgment. Just because a property has your dream kitchen or added storage doesn't mean it will contribute to capital growth. Focus on whether the property is a sound investment.
Secondly, consider the property itself and its surroundings. Patience in selecting quality properties in desirable areas always pays off. Properties that don't meet certain standards will continue to lose value and fail to keep up with median price growth. Consider factors such as location, floor plan, potential for modifications, parking availability, build quality, and finishing standards.
Of course, there are more factors to consider when performing a capital growth report, however, these initial considerations provide a starting point for your property search.
Feel free to contact us for any more information.
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