There are several different investment vehicles and investment strategies you could use to grow wealth and build a better financial future for yourself and your family. For example, you could consider cash/savings, shares, superannuation and/or property. To learn more about property investment loans, click here.
All these investment vehicles have pros and cons. Having said that, all of them can help lead you to a better financial future if managed properly. What is important is that you don’t procrastinate. Instead, choose a strategy and a vehicle for achieving your financial dreams as soon as possible. Make sure to get the right advice and support and implement your investment plan.
Some guidance from Rise High’s Director, Marissa Schulze
“The strategy that I chose to focus on in my wealth creation journey was property investment. The main reason why I like property investment, particularly the buy and hold strategy, is because it is easy to understand and implement. Furthermore, it is proven to be predictable over the long term period. Being risk averse, I also love the fact that I can mitigate almost all risk associated with my investments. I also am a lazy investor as I don’t want my investment strategy to consume too much of my time. I wanted an investment strategy that can be ‘set-and-forget’. However, it will still give me passive income and grow without me needing to work hard for the income or growth.
This is why property investing has worked so well for me and for so many people I know. If done properly, property investing could be the lowest risk investment vehicle to use to build wealth in long term. And with the right knowledge and strategies, it can produce a predictable outcome over the long term. So, let’s explore the reasons why you should consider making Property Investment your chosen wealth generation strategy, too.
Historically, property investing has delivered consistent and compounding growth. Historically, property values in metropolitan cities in Australia double every 7-10 years on average in the long term. Over the past 30 years property Australian median property prices have grown by more than seven times.
Whilst no one has a crystal ball, the supply and demand factors that have resulted in the historic growth of our property market still exist in Australia today. As a result, it is fair to assume that the property growth we have enjoyed historically will continue throughout our lifetime and beyond.
Supply and Demand Fundamentals:
Firstly, one of the major demand pressures on property comes from our growing population. With one new person every minute and eighteen seconds, our population is expected to double in the next 40 to 50 years. This predicts that our population will increase to 42 million by 2050. You can keep track of the population growth by referring to the ABS Population Clock available on the ABS website.
Secondly, there is another interesting statistic that investors should be aware of that will put even more pressure on demand. That is household formation and the number of new households as Australia’s demographics change over time. According to the ABS, the number of people living in the traditional family (i.e. Mum, Dad and kids) is expected to increase by 15%. However, over the same timeframe, single-person households are expected to increase by 24%. With the average number of people in each household reducing over time, this is going to put further pressure on demand for housing. As demand grows, this will continue to put pressure on house prices. This suggests that strong capital growth of Australia’s property will continue.
We have already established that in the future, there will be greater demand for housing due to our growing population and due to a reduction in the number of people per home. But is our supply of property going to keep up with the new demand? The answer is no, and the gap between the supply and demand is one of the reasons property values will continue to grow.
Over the long term, property has continued to provide strong returns when compared with other investment vehicle options.”
Other reasons for investing in property include;
Less volatile than shares
If you have ever invested in the share market, you will know first-hand that the value of your investment can fluctuate dramatically overnight. Often these fluctuations can stem from emotional reactions of the shareholders based on something in the media. It could also be due to unjustified fear that the short-term value of their shares will change.
Whilst the value of shares can change dramatically, this is not true for property. There are multiple reasons for this, but one of the main reasons is that about 70% of houses in Australia are owned by owner occupiers rather than investors. Unlike investors, homeowners, are emotionally attached to their homes, thus less concerned about the value of their property. Homeowners are more concerned about having the security and stability that their home brings.
I also believe that most property investors take a longer-term view than share market investors. Most property investors understand that property investment is a long-term strategy. Therefore, they will not react hastily and irrationally if there is a fear that the property market may soften in the short term. Because of these factors, we don’t experience mass exoduses in the Australian property market like you would in the share market. As a result, the property market is less volatile.
Of course, where there is reward, there is risk. However, the thing I love about property investing is that, if done properly, property investment can be very low risk. This is because you can easily mitigate almost all risks associated with it.
Easy to manage
We all live busy lives and your wealth generation strategy should complement and enhance your lifestyle. It should not take up all of your spare time. What I love about property investment is you can be a lazy investor and let the property do the work. Once you buy the property and find a great property manager, you can sit back, collect the rent and watch your asset grow. Doesn’t that sound nice?
You are in control
Another big benefit of property investment is that you are in control. You are not leaving your future in the hands of the superannuation company (with little knowledge of what they are doing with your money). If shares are your strategy, you invest in a company, and the people that really control your investment are the directors of that company, not you. But if you own a property, you can decide whether you make improvements to it, you can decide what tenants you put in it, you can make the choices about how that property runs and what income you generate from it. Property is a popular vehicle for investment because it is a tangible investment that you can see and touch, and you are in full control of what happens with your asset.
People will always need a roof over their head
Simply put, people always need a roof over their heads. And at the end of the day, investing in property is allowing you to create a home for somebody to live in and rent. There will always be Australians who need to rent affordable homes.
Property is also a tax effective investment strategy and may help you manage your income tax during your working life.
Passive income at retirement
Whilst the tax benefits might be attractive whilst you are working and paying high levels of tax, the ultimate goal for every property investor should be to have a positively geared investment property portfolio by the time you want to retire. In other words, you should be aiming for your properties to be at a point where the rental income you receive is not only covering all the costs associated with holding the property, but is also providing you with an income to support the lifestyle you want. If you build a positively geared property portfolio (i.e. a property portfolio where the rental income you receive exceeds your expenses), property investment can give you a great reliable and regular income stream in retirement.
We have already discussed so many great reasons why property investment is a great investment vehicle to use to grow your wealth, but there is another big advantage that property investment has over all other investment vehicles. Arguably, the number one benefit of property investment is the ability to leverage greater than any other asset class. But what is leverage and why is it so important?
Leverage is using someone else’s money (i.e. the bank’s money) to build your personal wealth! In other words, leverage is when you borrow money to buy a property so that only a small percentage of the purchase price comes from your savings, and the majority of the purchase price is funded by the bank. For example, you could buy an investment property for $300K – i.e. you put in $30K (plus stamp duty and purchase costs) and the bank puts in the remaining $270K. The best bit about it is that the growth is not just on the money you put in, but instead the growth is on the full $300K value of the property. So, whilst you have only had to contribute $30K, you are getting a return based on a $300K asset.
This leverage means you can use less of your own money and get a better return on your own money. In other words, your dollar goes further, and you build wealth faster.
You can also start getting ready for your exciting journey ahead by learning more in our blog, discovering how you can get ahead financially or checking out our house price negotiation tips for buyers!
If you’d like to speak with one of our amazing brokers about purchasing an investment property or growing your existing investment portfolio please fill out your details below and we’ll get in touch with you!