Three Key Investment Terms

Those considering investing in any form of property will continually see a couple of terms used to discuss the investments performance, namely; capital growth, investment return and gross rental yield.

Capital growth. The term capital growth is often used in real estate to describe the increase in the price or value of a property. For instance the median price of a 3 bedroom house in Coburg in the March quarter of this year was $629,000 and twelve months ago it was $625,000. Therefore the capital growth is the difference between the two, $629,000, divided by the earlier figure, $625,000, which equates to 0.64 per cent over a year. Capital growth is also known as capital appreciation.

Investment return. From a real estate perspective the term investment return is very similar to the capital growth figure.  It is the percentage of change in value of the investment over a given period of time.

Gross rental yield. Gross rental yield is a term that is frequently used to compare the investment return on a property investment. To calculate the amount you divide the yearly rental income by the purchase price of the home. For instance the yearly rental income on a 3 bedroom house in Coburg is $21,580 and the median house price is $629,000 resulting in a gross rental yield of 3.43 per cent.