Commercial
The ABCs of capital growth property investment in Australia
Published
15 August, 2023
So, you’ve heard the term ‘capital growth property investment’ and you’re intrigued. It has a bit of a ring to it, what with the prospect of strong and steady wealth increase.
And yes, investing in properties that have good potential to rise in value can indeed be a golden goose. But there’s a lot to think about before you start counting those golden eggs. Don’t worry, we’re here to break it down for you.
Here’s what to consider before investing in a capital growth property investment:
1. Location, Location, Location
The first fundamental of buying well in real estate is location. Research the area around the property—everything from your potential neighbours to nearby schools, and from public transport to future development plans. Plus, you’ll want to peek at the property’s past—have prices been rising in this area? What’s happening in the relevant job market? These factors can help predict if your property’s value will also rise… Relevance is crucial.
2. Keeping up appearances
Remember that fancy-looking office building or retail space could also mean fancy (read: high) upkeep costs. Nobody likes surprise expenses, so ensure a thorough due diligence is completed before you buy to get an idea of likely repair and maintenance costs.
3. Your money magnifying glass
Before you buy, do a deep dive into the costs. Consider everything from the purchase price, estimated appreciation, potential rental income and ongoing expenses like property taxes and insurance. Doing this kind of comprehensive financial check-up can help you gauge whether the investment will be profitable or not.
4. The risky business
All investments come with risks. Property investment isn’t any different. Things like market changes, local regulations, even natural disasters can impact your investment. Make sure you consider these risks and have a plan to handle them.
5. Plan your exit before you enter
As you’re planning your commercial property investment, also think about how you might leave it. You should have a very reasonable idea of your total return and expected divestment date. Even if the market persuades you to reconsider that date, all is not lost. It’s merely about having a plan – because preparation is what’s important.
6. Know the law of the land
It’s also essential to know the legal ins and outs of property ownership—local zoning laws, potential legal disputes, tenant rights, and so on. A solicitor can be a helpful guide here (so can the fund manager of an unlisted property trust, if you choose to invest alongside one).
7. Surfing market waves
Remember, the property market can have ups and downs. Your property value forecasts are based on trends, and these can change. Be sure you’re prepared to ride out any storms that might come along with an adequate reserve fund for unexpected costs or vacancies that may drift your way.
8. Time is money
Owning a property isn’t just about the money—it’s also about the time. Dealing with repairs, managing tenants, and handling paperwork can take a lot out of your day. So, before investing, ensure you have the time to dedicate to your property.Again, you might consider investing alongside the pros, getting back your valuable time in exchange for an investment in the hands of long-time real estate experts.
9. Mind over heart
Lastly, treat property investment as you would any business decision—base it on logic, not emotions. It’s easy to fall in love with a property, especially one you’ve dedicated years of your life to. But remember, commercial property isn’t personal. It’s an investment. So there you have it, the ABCs of capital growth property investment. Remember, if done wisely, it can be a golden goose, but it’s crucial to take these points into account before diving in. After all, we want you to enjoy the golden eggs, not get stuck with an empty nest.
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