Capital Growth
Many investors who start in real estate investing focus on the cash flow of a
property, instead of the potential for capital growth or appreciation.
A few years ago, we decided to determine which one generates the most profit.
After alot of analysis under various market conditions, we determined that under
most conditions, most of the time capital growth generated the most profits
(with cash flow and equity buildup being next in line, at much lower rates).
After that revelation, we decided to focus on capital growth, but we always made
sure we had enough cash flow to cover any expenses on a property purchase.
Our guest writer this month, Don R. Campbell, talks about how to focus on
'transition areas' to maximize your potential for appreciation. There are also
many other ways, a few of which are outlined below:
- Economy - Wherever a town or city has a strong and varied
economy, property values will increase over the long term due to increased
demand. A good economy provides jobs, and with it, demand for housing.
Ottawa is a good example of such a city -- it is home to the Federal
Government, as well as one of the best high-tech industries in North
America.
- Transportation Changes - In today's world, distance is
measured in time, not kilometres. If travel time to an outlying small town
normally takes 45 minutes, that town will become much more attractive to
people if a new highway is built that cuts the travel time to 20 minutes.
The town is now 25 minutes closer to the city. As a result, property values
will increase because demand will grow.
- Change Of Use - Many municipalities try to reduce urban sprawl by providing new development lands within the city limits for builders. This process is called 'In Filling' and usually results in old buildings or empty fields turning into beautiful new condos, townhomes, retail stores, etc. This change in use can improve an entire neighbourhood and increase property values dramatically. Over the last few years, Ottawa has taken such an approach, with the most famous 'change in use' being Lebreton Flats, a 'brown field' slated to become an entire community close to the downtown core.
These are just a few of the ways in which you can 'stack the deck' in your favour for the highest capital growth. A sophisticated investor might take these one step further by trying to combine them. For example, they might buy property in an area of transition, near another area going through a change in use. Using this combination approach, an investor's return on investment could be tremendous!
No matter which you focus on, it's good to be aware of them all, as they all can have an effect on your real estate investments. Feel free to come back regularly to the Articles of Interest section of our website for the latest news and updates for Ottawa and other markets.
This article is copyright © 2004-2010 Spirepoint Properties. All rights reserved.
Paul Blacquiere and Joanne Beehler are full time real estate investors and have been investing in Ottawa, Ontario, Canada since 2002. They are owners of Spirepoint Properties, a Canadian real estate investing company dedicated to making real estate investing easy.
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