What is Capital Appreciation When Investing in Property?
When you’re just starting out in the world of property investment, you’ll come across a lot of different jargon and industry-specific terms.
If you aren’t too familiar with how property investment works already, these terms may seem confusing and daunting at first.
The good news is, with a bit of research, it’s easy to understand what the different lingo involved with the property market means.
One of the most crucial factors of property investment success is capital appreciation, and knowing all there is to know about capital growth is essential when it comes to investing in property.
That’s why we’ve put together this in-depth guide to capital appreciation and what it means. Hopefully, we can help you understand why when it comes to property, capital appreciation should be a key part of every investor’s strategy.
If you’re asking ‘what does capital appreciation mean’ and ‘why is capital appreciation so important?’, keep reading to find out more.
What Is Capital Appreciation?
So what does capital appreciation mean? Capital appreciation, also known as capital growth, refers to a rise in the value of an investment. If the value of an asset has increased over time, this would mean that capital appreciation has occurred.
How Do You Calculate Capital Appreciation?
Capital appreciation is calculated by taking the original purchase price of the asset away from its current market price. For instance, if you bought a property for £120,000 and it was now worth £160,000, the amount of capital appreciation would be £40,000.
What Is the Difference Between Capital Growth and Capital Appreciation?
Capital growth and capital appreciation share the same meaning. Both terms represent growth in the value of assets over time, whether this is a savings account, a stock market investment, or a property.
What Is Capital Appreciation in Property?
When it comes to property, capital appreciation is when the value of a property has grown over time. House prices can go up and down depending on factors such as property market performance. When an investor is able to sell their property for less than they initially paid for it, this means they’ve made capital growth returns.
What Is a Capital Appreciation Fund?
A capital appreciation fund is a specific fund that aims to increase the value of an asset class through investments in high-value stocks within the stock market. Capital appreciation funds are also referred to as capital gain funds, and are a type of growth fund.
Why Is Capital Appreciation Important For my Property Investment Strategy?
You might be wondering why capital appreciation is so important for you to know about as an investor. It doesn’t matter what kind of real estate investment you’re making, whether that’s buy to let, buy to sell, or a more alternative investment strategy like holiday lets. Every property investor needs to consider capital growth when planning their investment property strategy.
The reason capital appreciation is so important when it comes to property investment is simple – without capital growth, property investors wouldn’t be able to get the most out of their investment.
Capital appreciation provides one of the best ways to make a sizeable return on investment, which is the main reason that so many people invest in the property market year after year.
What’s Better For My Investment: Rental Returns or Capital Appreciation?
You might have heard a lot already about rental returns and what a big part they play in a buy to let strategy.
After reading about rental returns and their benefits, you might be considering how capital growth returns compare to rental yields, and wondering which type of return is better.
The truth is, when looking at capital appreciation vs income from rental payments, it’s not as simple as one being better than the other.
While rental returns are definitely the go-to priority for those looking for regular returns they can see right away, capital appreciation is also an essential element of buy to let that’s not to be missed.
The beauty of owning a buy to let investment property is that unlike other investment assets, buy to let allows you to generate two types of return on investment.
While rental returns will bring in regular income over time, capital appreciation allows the investor to receive a lump sum of income upon exiting the investment.
So, in summary, neither rental returns nor capital growth is better when it comes to investing in property. The best investments are those that combine high rental yields with a strong likelihood of capital growth.
How Can I Increase My Total Return With Capital Appreciation?
So now that you know why capital appreciation for property in the UK is so important, let’s look at how you can boost your investment income with capital growth.
Here are some of the things you should do to ensure you’re getting the best possible level of capital appreciation from your buy to let venture.
Research High Growth Areas
One of the best ways to improve your chances of capital growth with a property investment venture is by researching the best places to invest in property.
While UK capital growth rates are predicted to be high over the coming years, with an average house price increase of 21.1% by 2025, certain cities and regions are outperforming others.
Out of all the regions in the UK, the North West region is experiencing the highest rate of property price growth. In Savills house price predictions, the North West is expected to see house prices grow by 28.8% by 2025.
Recent data has found that the average rate of property price growth in Liverpool is outpacing growth in London by almost five times. Zoopla data shows that in the last 10 years, Liverpool properties have experienced market value growth of £43,093 on average, with a current value of around £181,287 as of April 2021.
Those who invest in Manchester and Liverpool are more likely to see significant North West capital appreciation returns from their investment property purchases. These cities also boast high rental yields, which is an added benefit if you want to maximise rental income.
Choose Your Investment Wisely
Once you know which location you’re going to invest in, you should think about the property itself if you want to maximise your potential capital appreciation through property investment.
Some property types may be more likely to grow in value than others. For instance, many people believe that residential properties can experience higher capital growth rates than student properties.
Student properties do, however, often offer more affordable prices, high demand, and lucrative returns in the form of rental income, so they remain a great option if you want to build an investment portfolio.
You’ll also want to research the specific area that your property will be based in, rather than just looking at the entire city as a whole. Just because a property is based in Manchester, for instance, doesn’t mean you’ll always see the best capital appreciation.
North West capital appreciation may be high, but to really benefit from the best capital growth returns possible, you should explore investment property opportunities in areas that are close to local attractions, amenities, transport links, and workplaces.
The city centre is often one of the best places to buy property if you’re focused on capital appreciation. In Manchester, areas like Salford are also hotspots for capital growth. Zoopla data estimates that average Salford property prices have increased by £31,529 in just five years.
Check out our property market reports for detailed information on house price growth in major UK cities.
Look For Ways to Add Value
Another option when it comes to increasing capital growth potential within your investment portfolio is to add value to the property directly. This means refurbishing the property, adding loft or basement conversions to increase space, or simply redecorating.
This strategy is most commonly used by those who purchase a property through an auction for a below market value price, with the aim of adding value through renovation work.
Due to the nature of this strategy, it’s often easier to add value to properties such as terraced houses or detached and semi-detached homes rather than apartments. That’s not to say, however, that there aren’t still ways you can boost the value of an apartment.
If you’re thinking of investing in a new build investment property, the property will likely already be very modern and decorated to a high standard.
While you may not need to do any major renovation work like updating the kitchen and bathroom, knocking down walls, or installing new flooring, there are some simple things you could do to improve long term capital appreciation.
This may mean repainting the property, adding stylish furniture to make it look high quality and modern, or giving the balcony or yard a makeover to make it look more appealing.
Get the Best Capital Growth Potential When You Invest With RWinvest Today!
Are you ready to make long term capital appreciation through an investment in a lucrative buy to let property? Then get in touch with us today.
We offer a property investment portfolio of residential and student properties in high growth cities like Liverpool and Manchester. Enquire today to find out about our current investment opportunities with projected growth of 28.8% by 2025 alone.
Disclaimer: For more in-depth information about capital growth, consider seeking out financial services and speaking to a financial expert.
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