Capital Growth confusion

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From: Gunna Doit


Hi there. I'm trying to understand how to calculate future cap growth and it's just not sinking in. I've chosen a town to look for an IP in & have been reading up on the importance of cap growth. I'm not sure just how to work out an IP's future cap growth? I had a look at the 3 types of residex reports available and wasn't sure which one was suitable for this. I also read that you should look at several other properties that have the same characteristics as yours to work out your cap growth. Is this very accurate? How would you know if they were overpriced or not? If you choose a house and could find out how much it cost when bought (originally) and how much the selling price is, would this help in your calculations?
I'm really stuck!!
gunna
 
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Reply: 1
From: John P


Hi Gunna, If you are looking at what the cap growth "WAS" for a property based on purchase price, current selling price and the time span in between, I have a simple Excel file that should help. You are more than welcome to send me an email and I am happy to send you a copy.

Regards


John Poulos
RESI Home Loans Representative
0412 588986
 
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Reply: 2.1
From: Lesley .


SG, what operand are you using between the brackets (ie "the cap")
Lesley
 
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Reply: 2.1.1
From: Gunna Doit


Hi all.
Thanks John & SG for the helpful replies. Having just searched forum a few months back, am I right in concluding that cap growth is actually calculated for a suburb and not an individual property?
If so, am I correct in assuming that the suburb's cap growth figure (which I can get from a residex report) is the figure that I use on the spreadsheet when doing my due diligence on an IP?
gunna
So many questions, so little knowledge.....for now
 
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Reply: 2.1.2
From: Silver Ghost


L,
the ^ is 'to the power of' (upper case 6 on the top row of the alpha keyboard)
SG
 
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Reply: 2.1.1.1
From: Rolf Latham


Hi Gunna

Residex uses a pairs model to estimate the actual past capital growth. I think it works crudely like this:

63 Smith St has just settled for xxx, and last sold for yyy in the year zzz. The growth for that individual property is calculated as are al the other sales where the are comparable pairs.

Unlike the use of medians per say, where half the sales over a time are above and below, the above method is statistically more valid because it is not skewed by new developments.
Ta

Rolf
 
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