The Capital Growth Investor
The capital growth real estate investor's number one objective is appreciation or (capital growth). If this is your goal you are in good company. It is the belief of many seasoned investors and very wealthy people, such as the Trumps and Buffets of the world, that appreciation is one of the best wealth building principals an investor can obtain. Cash flow is awesome and you MUST have positive cash flow within your investment. Cash flow is one of the wealth building principles but I believe it comes in second.
Capital growth is basically your equity build up. Now, the past few years have not been indicative of average returns, however the 50 year national average appreciation on single family homes in America has been 6% per year. For every one hundred thousand dollars of assets you have earned 6% (or $6,000) in capital growth. This now totals $106 thousand in assets that will compound again next year. It is very hard to find cash flow of that magnitude in any other investment vehicle.
So you want capital growth as your number one objective. Your next question just has to be where you get the BEST capital growth. Here are a few things you will want to look for to help insure you are investing in an area with the best possibility for growth.
The market you invest in must have good job growth: this job growth will help provide a need for more housing and housing demand will drive capital growth.
You will want a market that is undervalued: as an example, you will want an area where it takes less than 30% of the median income to pay for the median price of the home. This is considered an undervalued market. Markets that are undervalued at the time you purchase have the best and safest possibility of growing. Once a market becomes over valued, the capital growth diminishes.
You will want a market that has baby boomer appeal: this will contribute to population growth.
You may want to look at their local government's long term vision. (Do they have a long term vision) are they trying to attract new businesses and jobs. Jobs create population growth and population growth creates housing needs. All these growth words are wonderful for capital growth.
You will want to look at current acquisition costs of buying a property versus the current building cost: you will want to invest in a market where the building cost has a large spread between current acquisition and the cost to build. As a market becomes balanced and even becomes a seller’s market, the current selling price of a home will be close to that of the cost to build it. A great indicator of how much capital growth potential is in a market is by looking at the spread between current acquisition and building cost.
I could go on and on, but I believe you get the picture. Today’s real estate market can provide capital growth in most any city. However, real estate is all about location and there are many indicators that can help you ascertain which markets will better be suited for your capital growth potential. Not all markets will have every element going for it. However the markets that have the most elements identified in the above bullet points will represent your best capital growth markets.
Looking deeper within the best markets, what product will represent your best and highest growth. The answer is simple. It is the product that is most highly sought after. The properties that are in the path of progress within the market and the properties that most people want to live in and can afford.
In The U.S., the 3 bedroom, 2 bathroom, 2 car garage homes will usually represent your most highly sought after property. This is where you will find the best representation for capital growth. The capital growth investor can reach his goal of appreciation if he is willing to take the time to study the markets and make informed decisions.
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