Inflation reduces CG: what about leverge?

Just wanted to comment on Steve’s article on Inflation And Property in the May Issue 5 newsletter. Whilst I totally agree with the impact of inflation on the ‘real’ capital gain of a property I think as investors we need to consider the power of leverage.

I’m assuming the property is an investment property rather than John’s place of residence. If John bought the property for $185,000 with a 10% deposit (say an outlay of $18,500) and the property nuetrally or positively geared for the next 10 years, if he sold it for $450,000 and as Steve noted the ‘real’ capital gain was $143,353 his return on investment would be 774% ($18,500×774%=$143,353) over the period.

Furthermore, we also need to consider that with inflation we experience increases in rent (in most cases), and most importantly, the increase in capital growth allows us to borrow more money to buy more property.

So if the original $18,500 is invested smartly in the right area with a realistic strategy, the returns for retirement may be more than well funded. What are your thoughts?