Property is one of the many ways that can take you from where you are now to where you want to be in the future. But why should you choose property?
First, it’s been proven that property can create millionaires. According to the annual publication of the BRW Rich 200 list, property has created Australia’s wealthiest people. The same can be said for the rest of the world. Those that have built their wealth out of property generally have investments in the real estate. And if these principles apply to the most successful people, then there’s very good reason it could happen to you too.
Property is for everybody, not just for the wealthy. You can get involved in the property no matter what your profession. Banks will allow you to loan up to 80% the total value of the property, meaning, ordinary people like you and I can possibly get investment properties.
Furthermore, banks see property as an excellent security. Residential property is often said the “brick and mortar” of security and for very good reason. In the past financial crisis and even recession years when almost all shares fell by 40 to 50 per cent, real estate prices held up pretty well. In fact, it is with this steady growth in property that people are able to make money and secure themselves financially. Furthermore, banks know that residential security have never fallen down over long term and Australian banking system is supported by the continuous growth of residential security in the market.
Because the Australian real estate is considerable in size, it is the largest asset class in the country. In the 2011 census, there are 9.1 million dwellings amounting to a total of $4 trillion dollars!
But the really special feature of the residential property market is that owners occupy 70 per cent of the properties while the 30 per cent is for investors. If you think about it, this aspect of the market is the only one not dominated by investors, giving them that much needed support they can always fall back to.
The rental income you receive from your investment property allows you to borrow and get the benefit of leverage by helping you to pay the interest of your mortgage.
So what’s in it for you?
Over the years the rental income received from property investments has increased at a rate that surpassed inflation. In 2011, the average rate has increased over 50 per cent for the past five years, giving you 8.45% more income per annum.
Will this continue in the future?
The scenario for Australia is this: fewer people are able to afford their dream homes because of rising prices, increasing debts, and high rentals. Many Australians are likely to become tenants in the future, availing you the opportunity to make more money from your residential property investments, especially if you have property that’s in demand for the tenants’ tastes.
Interestingly, statistics from the research house RP data show that over a seven-year period from early 2006 to late 2011, rental growth across the combined capital cities has outpaced the growth in home values.
Another good reason why you should invest in residential real estate is because it has an excellent track record for consistent capital growth. Over the past 45 years, the value of average property in all capital cities has doubled every eight years or so. That’s another great thing about property: you can research areas with of strong capital growth, purchase property below the market value and mark it up so you can enjoy increased capital growth and rental return.
For example: you purchased a property worth $500,000. With an average of eight per cent per annum property increase, that property could be worth a million dollars in ten years, 2 million dollars in 20 years and so on. And even if you purchased the property with little equity and borrowed the rest from a bank, you will continue to enjoy the property increase as much as six-fold its net worth for the next ten years. The digits will just keep piling up due to the combined effects of leverage and compounding.
Another beauty in investing in real estate is that you don’t have to use up all your hard-earned money just so you can buy a property. Through bank financing, you only need to deposit 20 per cent of the property’s value and the rest is shouldered by the bank. This is called leverage. This is the reason why real estate is not just for the wealthy; leverage has enabled the ordinary worker to make his own investment in real estate.
You can try negotiating as much financing for other forms of investments, but banks will likely to lend you a lesser amount. But if you invest in real estate, they will be happier to give you as much as 90 per cent, due to real estate’s proven record of stability, security and capital growth.
Here’s another good scenario why property investment is a good source of passive income: get people to rent your property. See them wake up early in the morning, get dressed; hurry to work and all you do is receive money from their rental fee. You don’t have to think about their sick leaves and holidays. All you have to do is wait for the agreed time of the month for rent collection, your guaranteed income will come to you without lifting a finger. And the more tenants you have, the more money you get!
And if those reasons are not enough, consider these: buying a property for a lower price and marking it up so it increases in value. Imagine doing little things such as refurbishing your property, changing the paint color, renovate and develop it so you can market it for a sounder price. Imagine getting tax benefits, security and the inevitable increase in value with you not having to do anything. These, and so much more, are the beauty of real estate investments. And these are the reasons why you should invest in real estate property now.
To get in touch with a Financial Specialist at Gordon Wealth, click here, or call us on 1300 05 05 88.
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