Expert Advice with Philippe Brach 30/11/2016
It’s essential to have assets with capital growth potential in your investment portfolio if your goal is to create lasting wealth.
But how do you find properties with strong growth potential?
Ideally, you need to buy with a goal of creating capital growth. Many people make the mistake of focusing on cash flow, but in most cases a positive cash return is a shortterm play. Without growth, you’re not going to be able to create wealth for the long term. So, how do you find a property that has the fundamentals in place to be a proven performer?
You need to focus on the drivers of capital price appreciation, which boil down to six key points:
1. Location –
This is definitely the main driver of capital growth. There are many things you can change about a property, including its layout, condition, colour scheme, even the number of bedrooms it offers. The one thing that you can’t ever change is your property’s location. Buying in an attractive, quality location is important because it ensures long-term demand from a rental perspective, and also ensures you have a robust potential buying market if you ever decide to sell.
2. Infrastructure –
Infrastructure is a major consideration when you’re working out where to invest. But what does ‘infrastructure’ mean and what should you look for as an investor? Essentially, I’m referring to any kind of infrastructure – whether it be transport, industry or commerce – that will benefit local residents. This could be anything from a new train line or expanded freeway, to commercial construction that adds employment opportunities to the region.
3. Condition –
When deciding which property to invest in, you can buy a brand-new property or an established property. Depending on your personal strategy and your goals, you may decide to renovate to add value and build equity, or you could buy a new property to access the depreciation and tax benefits. In terms of generating capital growth, either strategy can offer price appreciation potential. Success here is a matter of knowing the market well, really understanding themarket cycle, and buying the appropriate asset for that particular market.
4. Balance –
How do you strike a balance between yield and capital growth? Generally speaking, my advice to my clients is to make their wealth creation strategy as passive as possible, which leans towards buying new properties that are low maintenance and that produce high depreciation benefits. These types of assets will also have the added benefit of positively impacting your cash flow, allowing you to invest in a balanced way.
5. Point of difference –
It’s important to ensure your investment property stands out from the rest, so that you are offering a point of difference to potential renters (and eventually, buyers). Can you offer secure off-street parking or an undercover entertaining area, when similar, competing properties don’t have these features? Find out what the local rental market really wants and then deliver it to them.
There are a number of strategies you can use to create wealth, and they all have their benefits and drawbacks, but whichever option you choose, it’s essential that you have a strategy and a plan in place to help you achieve your goals. In my view, investing for capital growth is the ideal way to invest as it puts you on a meaningful path towards financial success.
He has over 15 years experience in property investment and has helped many first time and experienced investors achieve their goals. He is also the well-recognised author of the book ‘Creating Property Wealth in any Market’ which lays out in detail what it means to invest in property.