Creating Capital Gain

Mansion Growing wealth through capital gain

For most of us, we consider that house inflation (the rate house grows in value year-on-year without any effort) is capital gain. It's not.  While benefiting from this "inflation" driven gain is better than nothing, there are also opportunities to improve your gains by creating capital gain on your home.

There are three key ways using real estate to create Capital Gain

1. Renovation

For many, the traditional way into the housing market was to roll up the sleeves and renovate an older home.  This work improved the value and made the home more saleable.  While renovation is still a great way to enter the housing market, and we certainly would not want to discourage this, there are now reasons why caution is required.  New building code may require renovations to remedy a house to the level of the new code and if major unexpected structural (or water tightness) issues arise, there may be no capital gain left.  Most renovations in past never required a building consent, but now most do, and sometimes the entire house must be brought up to code, adding unexpected costs.

2. Subdividing Land

Subdividing land is possibly the best way to create capital. It almost always produces good capital gain, but to subdivide requires you to be well resourced as the cost to subdivide is quite high.  So until the subdivision is complete you will need to rely on excess capital (equity or cash) to fund the subdivision.  The second major concern is time.  Subdividing land traditionally takes several years, so outlaying cost over an extended period can be problematic. If you plan to subdivide,  you need to be well resourced and patient.

3. Building

Building a new home almost always creates more value than what it cost you, mainly because most people can't be bothered with all the effort required.  As you are the first person to benefit from your build, that gain belongs to you. Also, you don't have to sell to realize the gain; it stays with you as long as you own the home added to the inflation gain over a longer period.  Building is also reasonably fast, offers a brand new product, and is easy to finance with NewBuild.  In many instances financing may be possible with a lower deposit.

What's the Secret to Capital Gain?

There are companies that can offer you seminars on wealth through real estate.  Typically they all offer "Capital Gain" which, in our opinion, is often confused with Inflation gain (owning real estate for a long period).

Capital gain is best gained by "CREATING VALUE".  In the three ways shown above, it is the creating of value relatively quickly that is capital gain.  Your owner-occupied home should qualify as your first and best capital gain producing asset.