Capital Growth

[Nicholas DeLouisa Jr]

Hello,

I am having a little trouble understanding the nuances of a capital growth strategy, as opposed to, say, strict buy-and-hold. I guess I don't quite see specifically what IS capital growth and what is NOT capital growth, with respect to income properties. The way I'm reading it, capital growth is about increasing value. But doesn't paying down a mortgage increase value? Or is it only appreciation and/or repairs/updates/etc. that would be considered capital growth? Is it all about taking properties and trading up to increase value? Is it some combination of these? Or perhaps some of the above is and some isn't? 

I'd appreciate any clarification, thanks!

Nick

[Bryan Hancock]

Your net worth will grow whether or not this comes from the appreciation of your assets or an amortization of your debt.  A lot of concepts in traditional finance definitions are driven by the more traditional securities industry and don't necessarily apply as well in real estate.  At the end of the day what matters are cash flows and those will determine whether or not you actually realize a growth in capital over a period of time.  

People generally look more to appreciation for a growth in capital.  People seeking capital growth are generally looking to make their money work harder and trade this off against more stable cash flows.  Higher leverage and exchanging up allows one to control more assets with less equity and thus supports the capital growth strategy.  People generally either exchange up to bigger projects if this is their strategy.  They could also refinance and use these proceeds to buy more property.  

If your goal is to grow your capital base more quickly a constraint generally is cash.  Thus these individuals generally don't want to keep excess cash tied up in projects because it lowers the return on this equity and doesn't allow one to control as many assets as they could if they exchanged, refinanced, or otherwise deployed the capital to a more efficient vehicle for growth.