If you look at the results others have achieved, you have to say that property makes pretty good investment sense.
According to the BRW Rich 200 list, which is published each year, property has consistently been the major source of wealth for Australia’s multimillionaires.
And it’s the same all over the world.
Those that haven’t made their money out of property generally invest their money in real estate.
Remember, there’s nothing wrong with seeing what successful people do and applying those principles to your own life.
If the majority of extraordinarily wealthy people have used real estate profitably, it stands to reason that there’s money to be made in this sector.
2. ANYONE CAN DO IT
Property investment is not just for the wealthy.
It doesn’t really take large sums of money to get involved in real estate.
This is because banks will lend up to 95% and sometimes even 100% against the security of residential property, which means that most Australians with a steady job and a little capital behind them can afford to buy investment properties.
It has been shown over and over again that careful and intelligent use of real estate can enable ordinary Australians, like you and me, to become property millionaires in about 10 years.
If you truly intend to become one of the wealthy people in the future, you should probably take a serious look at using property to your advantage.
It’s often said that residential real estate offers the security of “bricks and mortar”, but let’s take a closer look at why I believe it’s one of the safest and potentially most profitable investment markets in Australia.
You never hear of houses going broke do you? But lots of companies have gone broke.
Even companies previously considered as blue chip companies have gone broke.
Yet even allowing for the ups and downs of real estate values that we hear about, the underlying trend of property prices in the major capital city residential markets has been steady growth.
Banks have always recognised property, and especially residential real estate, as an excellent security.
The reason they’ll lend you up to 90% of the value of your property is that they know property values have never fallen over the long term.
In fact the entire Australian Banking system is underpinned by the continual growth of residential property.
4. INCOME THAT GROWS
The rental income you receive from your investment property allows you to borrow and get the benefit of leverage by helping you pay the interest on your mortgage.
Will this continue in the future? Over the years the rental income received from property investments has increased and this increase has outpaced inflation.
We know that the government is having difficulty providing public housing, which means there will be plenty of opportunities for landlords to make good money in residential property investment, particularly if you own a property that will be in demand by tenants of the future.
5. CONSISTENT CAPITAL GROWTH
Good capital city residential property has an unequaled track record of producing high and consistent capital growth.
Over the past 45 years the value of the average property in Melbourne and Sydney has doubled in value every seven years or so.
However, in the short term the picture is much more uncertain and confused and at times capital growth stops and even reverses for a time, as we saw in the early 90s and in the slump of 2003- 2006.
In all Australian capital cities this growth has averaged just under 10%, compounding each year over the last 25 years.
The better your property selection – where you buy, what you buy, how well you negotiate and how you finance your property investment – the better your returns could be.
You can outperform the average by researching areas of strong capital growth, by buying your properties below market value and then adding value, which increases your capital growth and rental return.
If a property increases in value by 10% per annum (averaged out over a number of years) then the value of that property doubles every seven years.
Imagine you owned a property worth $500,000. In seven years time the same property would be worth $1 million and in 14 years it would be worth $2 million.
6. YOU CAN BUY IT WITH SOMEONE ELSE’S MONEY
The return you get on real estate if you pay for your purchase using all cash (without getting a loan) isn’t much higher than what you can achieve with other types of investments.
Of course, with real estate you usually don’t pay using raw cash; instead you use someone else’s money to buy your properties.
That is, you put down a small deposit, often 20%, and the bank finances the rest.
This is called leverage. The ability to use leverage with real estate significantly increases the amount of profit you can make and, importantly, it allows you to purchase a significantly larger investment than you would normally be able to.
Because of its history of security, stable income and proven capital growth, residential real estate is regarded as a prime security or collateral for loans, which means that banks may lend you as high as 90% of the value of your property.
7. YOU ARE IN CONTROL
Property is a great investment because you make all the decisions and have direct control over the returns from your property.
If your property is not producing good returns, then you can add value through refurbishment or renovations or adding furniture to make it more desirable to tenants.
In other words, you can directly influence your returns by taking an interest in your property and by understanding and then meeting the needs of prospective tenants.
8. TAX BENEFITS
Opportunity exists to claim various tax deductible expenses through an investment property. An accountant can show you how to legally cut your tax expenses by potentially thousands of dollars.
9. YOU CAN ADD VALUE
There are hundreds of ways you can add vale to your property, which will increase your income and your property’s capital value.
These include little things like giving it a coat of paint or removing the old carpet and polishing the floorboards underneath.
Or you could do major renovations or development works.
10. YOU DON’T NEED TO SELL IT
Unlike most other investments, when real estate goes up in value you don’t need to sell in order to capitalise on that increased value.
You simply go back to your bank or mortgage broker and get your lender to increase your loan.
11. MOST FORGIVING
Even if you bought the worst house at the worst possible time, the chances are good that it would still go up in value over the next few years.
History has proven that real estate is possibly the most forgiving investment asset over time.
If you are prepared to hold property over a number of years, it’s bound to rise in value.
There’s really no other asset class quite like property!