Why is Capital Growth Important?
It's
a common debate in the property industry about income vs. capital growth – I
don't believe they are necessarily mutually exclusive. You can generate income
and capital growth if you know what you are doing. Income is important, however;
to truly grow wealthy from property investment you must have capital
growth.
Successful
investors understand the miracle of compound growth. Continuous growth in the
value of investments year after year has generated vast fortunes over time. A
comment often attributed to Albert Einstein is, "Compound interest is the
greatest mathematical discovery of all time." Most investors probably don't see
much difference between getting 8% per annum and 11% per annum from their
investment. While 3% per annum doesn't sound like a huge amount, you might be
staggered to find out the cumulative differences to the level of wealth created
over time.
If
you invested $400,000 in property and received a capital growth rate of 8% per
annum (let's ignore income and expenses for this illustration to keep it simple)
it would be worth $1,864,383 after 20 years. If you managed that investment just
a little better and you could derive 11% per annum, that same investment would
be worth $3,224,949 after twenty years. That's a staggering $1,360,566
difference! The impact of leverage makes the difference on the return on capital
invested even more impressive.
The
other great benefit of capital growth is that you don't pay tax on the gain
until you sell. If you hold a property forever you never pay capital gains tax.
The ability to defer capital gains tax on the gains made each year is
extraordinary. This gain continues to compound each year, delivering fortunes to
those who know how to find the right investment
properties.
There
will be properties that will produce 2-3% per annum compound growth above the
median property price. To be a successful and wealthy property investor, it is
essential that you employ the strategies and research to enable you to achieve
this goal. At Momentum Wealth, it is our mission to find you the properties that
outperform the rest.
