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A guide to capital growth

There are many ways to increase your wealth, and capital growth is one of them. If done with a plan and a strategy, your chances of positive returns are good.

This guide will show you four ways you can achieve capital growth and what to look for in an investment property.

If you want to see how Great Southern Bank can help you start your investment journey, take a look at our investment property loan.

Understanding capital growth

In simple terms, capital growth is the increase in the value of your property over time. So, if you bought a property for $500,000 two years ago and it is now worth $750,000, you've had capital growth of $250,000.

In other words, you've achieved a $250,000 increase in the value of your property. You put in the research, you invested your money, and now you've got a lot of fruits for your labour. This is why owning and investing in property is so attractive in Australia. You can accumulate wealth over time, depending on the market conditions and where you choose to invest.

Strategies for achieving capital growth

There are a few options available to you to achieve capital growth. They range from passive to active and strategic. With the right help and some clever decisions, you can make your money and your investments work for you to gain wealth and security.

Market increases

The easiest way to increase your capital growth is to let the real estate market heat up around you. As property prices rise, so too will your capital gains.

Before purchasing an investment property, it's important to do some research. Find growth corridors where development is happening. See where land is scarce but popularity demand for home ownership is high.

Home renovations

You can invest money into your current property and increase its value. While this will cost you money upfront, the end result should give you a decent return. By adding another bathroom or a study, for example, you might expect your home to become more attractive to potential buyers, hence you could see an increase in its value over time.

A good paint job can increase 'curb appeal' and hence the sale price of the property. A kitchen and bathroom renovation, and a recarpet inside can also give you some good returns.

Don't over-invest in renovating your home if you intend to sell. You want to ensure you make capital gains through this process, not a loss.

Also, be conscious of what kind of renovating you're doing. Not all improvements are welcomed by the market. Speak to a real estate agent to find out what is selling in your neighbourhood.

Check out more tips for finding a loan to help with renovating.

Buying under the market value

This strategy involves buying a property for less than it’s worth on the market. It can potentially score you a capital growth boost right away.

However, it isn’t always easy to find and buy property under market value, especially in a market that is heating up.

Local development

If a council is upgrading the neighbourhood, this can bring capital growth to your investments as well.

Are there improvements being made to the schools? Is the local shopping centre being redeveloped? Are new parks and playgrounds being built?

In short, is the neighbourhood being ‘renovated’, which would in turn increase the value of your property? Is it becoming more desirable to live in your suburb?

How to choose a property with high capital growth potential

Doing some research before you buy can significantly increase the chances of capital growth and the amount you will receive.

  • Location
    As the old saying goes, location, location, location! If you can purchase a property in a suburb that is growing in popularity, and predicted to continue to grow, your chances of capital growth can be good.
  • Scarcity
    Scarcity is what drives up the value of an asset. A lack of supply builds scarcity. If you have property in a high demand area, this benefits you.
  • Potential
    Can you find a property that has potential? Is it a fixer-upper? If you invest some time and money to renovate, could you gain good capital?
  • Development potential
    Changing school zones or increased residential density limits can significantly improve your chances of returns on your investment.

How can I access the capital growth in my investment?

There are two ways you can access the capital in your investment. These are:

  • Selling your property
    You can sell your property for more than you paid for it and get a return on your investment. However, you may be liable for capital gains tax.
  • Borrowing against the equity
    Home equity is how much your property is worth minus how much you owe on your mortgage. If your current property is worth $750 000, and you still owe $500,000, you have $250,000 in equity.

    To find out your useable equity, take 80% of the value of your home ($600,000), and take away your current mortgage ($500,000) leaving you with $100,000 in useable equity.

    You now have $100,000 of useable equity to put into renovations, a new car, or a holiday. Or you might want to use it to buy your next home with a variable home loan from Great Southern Bank.

Capital growth versus rental income investment strategies

A capital growth strategy is a long game, while a rental income strategy can be both a short game – positively geared, and a long game- build a portfolio of properties for your nest egg.

Capital growth relies on the value of your property increasing over time due to any or all of the reasons discussed above. You will only get results if you borrow against the equity or sell your property when you feel the value has risen enough.

A rental income strategy has the benefit of you seeing income immediately, as long as you are positively gearing your rental property.

Alternatively, by building an extensive portfolio of rental properties, you can have a long view for retirement, a long-term income goal through property.

If you’re the sort of person who doesn’t mind a bit of risk, then capital growth might be for you. If you prefer low-risk investments and quicker results, rental income would be more up your alley.

Considerations for capital growth

While the idea of letting your investment grow in capital value sounds like a great idea, remember, it can be too good to be true. It may sound easy in theory but there are many things you need to consider.

It’s important to remember that investment always comes with an element of risk. Property values could fall or a suburb you thought would grow in popularity might not. Capital growth is a long game, and you may end up with very little return.

There is also capital gains tax (CGT) to consider. CGT is a tax you pay on the profit you make from the sale of your property. The higher your capital gains, the larger your tax bill will be. The ATO has a lot of good information about capital gains tax if you’d like to learn more.

Learn about property investing 

Start your property investment journey with these articles:

A beginner’s guide to property investment

Ready to kick-start your property investment journey? Our beginner's guide to property investment covers everything you need to hit the ground running.

Read more
Things to consider when refinancing your investment loan

Refinancing your investment property can be confusing at times. We’re breaking it down so you can understand and consider refinancing with ease.

Read more
How much deposit is needed for an investment property?

Looking to invest in property? Learn the deposit requirements for investment properties and how to prepare for this important expense.

Read more
HOME LOANS
Invest the clever way
  • Competitive discounted variable rate
  • $0 monthly or annual fees
  • Unlimited extra repayments
  • Redraw at any time for free4
  • Interest-only option available5

Explore investment home loans

Basic Variable Investor Loan
Discounted rates from
6.34
%
p.a.
Comparison rate^
6.40
%
p.a.
Find out more
Investor, principal & interest, LVR 70% or less. Includes discount on new and additional lending. Minimum loan amount applies.1,2,3
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Important Information

Rates current as at 20 August 2024 and subject to change.

Great Southern Bank, a business name of Credit Union Australia Ltd ABN 44 087 650 959, AFSL and Australian Credit Licence 238317. Lending criteria, limits, conditions and fees apply. Applications are subject to credit approval.

This is general information and does not take into account your objectives, financial situation or needs. Consider the appropriateness of the information, including the Terms and Conditions (T&Cs)  booklet, before acting on it. The Financial Claims Scheme may apply to this product; refer to the T&Cs for more information.

^ Comparison rate examples are accurate for a personal loan amount of $30,000 secured loan over a term of 5 years. WARNING: Comparison rates are true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.

1 Discounts off the Basic Variable Reference Rate are available to (a) new home loans with a minimum application amount of $100,000; or (b) switching or restructuring of the home loan you already have with us when it includes new borrowing of at least $10,000; and the application is unconditionally approved on or after 20 August 2024. Published interest rates are inclusive of any discounts off the respective Reference Rates. Interest rates and discounts vary based on the loan purpose (owner occupier or investor), repayment type (principal and interest, interest only, construction) and Loan to Value Ratio (LVR). Maximum LVR applies and includes Lenders' Mortgage Insurance and Great Southern Bank loan setup fees where applicable.

2 Great Southern Bank may withdraw or amend this offer at any time without notice. A change in your loan purpose, your repayment type or your loan product will permanently end your entitlement to the discount.

3 LVR means ‘Loan to Value Ratio’. It is the amount of your loan divided by the valuation of your property, calculated as a percentage. For example, if you apply for a loan of $400,000, which will be secured by a property valued at $500,000, your LVR is 80%. We calculate your LVR at the time we approve your loan and your discount won’t change because of changes to the LVR during the life of your loan.

4 A $200 minimum withdrawal amount applies for redraws conducted in-branch.

5 For Interest Only loans, a maximum interest only period of 36 months applies for owner occupier loans and 60 months for investment loans. For Fixed Rate loans, the interest only period must align with the fixed rate period. On expiry of the Fixed Rate interest only period, loans will revert to the Basic Variable Principal and Interest Owner Occupier or Investor Reference Rate (as applicable) which applies at the time of expiry. On expiry of the Basic Variable interest only period, loans will revert to the Basic Variable Principal and Interest Owner Occupier or Investor Reference Rate (as applicable) which applies at the time of expiry, less any discount set out in the loan contract. On expiry of the Offset Variable interest only period, loans will revert to the Offset Variable Principal and Interest Owner Occupier or Investor Reference Rate (as applicable) which applies at the time of expiry, less any discount set out in the loan contract. Comparison rate for Interest Only loan is based on interest only payments for the fixed term and principal & interest payments for the balance of the term.

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