What percentage is considered good Capital Growth?

Hi,

I am reveiwing the performance of my properties from a capital growth perspective. The value of the property has gone from $700k (purchase price) to $985k (valuation from last month) in about 5 years.

I got 2 x questions:

1) Do you calculate the growth rate as per below?
($985k / $700k) ^ (1/5) - x 100 = 7.1%
This is how annualised growth rate is calculated.

Or would it be more like this?
$285k / $700k x 100 = 40.7% over 5 years = 8.1%

I think the correct way to do it is the first approach. Please confirm.


2) Also, what do you consider as a bad, average, good and excellent growth rate percentage? Would it be as follows:

- Bad < 4%
- Average 5-6%
- Good 6-8%
- Excellent > 8%

 

You can use below simple calculator for annualized returns.

Annualized Return Calculator

 

I think anything about inflation is good. recently capital growth rates have been crazy but this is no really 'normal' inflation plus 2% is pretty good.

 

As a rule of thumb good property doubles every 10 years of has a growth rate of 7.2% based on the rule of 72 (growth rate into 72 tell you have long it takes something to double).

So based on this a 700k property plus stamps/legals of 20k. So a total of 720k ...property value now is 985k..so a gain of $265k over 5 years.

Based on a growth rate of 7.2% per annum it should be worth 1.08m.

Your property is growing at about 5.1% is average...based on your formula.

Where is the property?

 

My question will be where I can find such property with budget of $800k -1.5mil in today's market which can earn 7.2%-8% pa for the next 20 years

 

Perth....buy in for 400-500k....in 3-4 years...600-700k. Simples. Work the maths on dhat....

 

The property is in North West Sydney - Schofields. I bought it as a Home & Land package. I know most investors say that buying H&L isn’t a wise investment choice because most of these properties are surrounded by vast estates of similar properties with a lot of vacant land in the outskirts (supply >> demand), but the property has fared pretty decently in terms of growth. A new metro station came up after I bought it. A new shopping centre and a car park for the train station is coming up too. A new hospital is coming up too. I think I also bought this at the peak of the market right before the decline. I bought it in Jan 2017. I actually bought it as an OO, but will be moving out soon due to personal circumstances and will become an IP. I still doubt if buying H&L in the outskirts is actually a bad investment choice. Any thoughts on this? I know my most recent valuation was done in a booming market, but I purchased it also in a booming market, so it even it out - boom, drop and boom.

 

Now drop the suburb nane too plz your tip for Vic went long way!!!

 

Since capital gain is lumpy, you probably won't find something that grows 7.2%-8% year on year. But if you TIME the market you can do much better than that. For instance I bought on GC just over 18mths ago for around $850k.....worth $1.4m, give or take now. So, if I was trying to time the market, I might sell that, take the profit and go to Perth, wait a couple of years, sell, then take to the next emerging market, and so on, and so on.

Of course, the promise of greater profit can translate to greater risk.

 

Let you know in 2 years.
Where in Vic did you buy?

 

Lots people keep listening to vested interests. I have made a lot of money in H &Lvbut at the right times. Your timing in Schofield's is great but doing it again in Sydney is questionable bordering on madness.

 

5 yrs ago Wyndham Vale

Want to buy next IP in Dec/Jan

 

Great...happy for you! Yes Wyndham Vale has gone up a lot...despite a lot of people saying House and Land does not pay.

Please share the rough numbers so others can also believe all is not bad with H&L. Thanks for sharing!

But I reckon you got jipped .....compared to some of the other deals in Geelong. But hey it is great you are not complaining ...and not having a go at me.

 

Lol

It wasn't H+L package. We bought the established property built in 2013 for $384k (4/2/2-550sqm). So far so good, it's not doubled yet though

 

Ok ...it's probably worth about 600k. Newer gets more

 

What makes you think so? Besides it recovering from the bottom, what data factor or metric is indicating it will double in 3-4 years?

 

I thought my timing was very bad considering that the Sydney market peaked in 2017 and dipped immediately after that. I bought right at the start of 2017.

 

Hilarious...... @MTR pleeasssee...explaaaiin...... ya know rising markets and all dhat stuff.....

 

Sorry, I don’t understand your message. What are you implying and who was it directed to?

 

Anyone have answers to my question in my first post?