There are a lot of ways for you to spend your hard earned money, so the question is often asked “Why invest in property?”
Just like we have, most people looking to invest their money will generally consider shares and/or property. Where you decide to invest your money will often be a result of the level or risk you are comfortable with, the amount of money you want to invest, and the short and long term goals you expect from your investment.
I’m not going to discuss here the comparison of shares versus property. I might do another post on that topic alone another day.
Today I want to highlight the 3 key reasons property is such a great investment.
To Invest In Property Is Low Risk
Despite what many people think, property is still a relatively low risk investment. Investing in bricks and mortar always has been solid.
One of the reasons the risk factor is low with property is that Australia has an ever increasing population growth. This graph taken from http://www.abs.gov.au , shows continued growth for Australia as at 30th September, 2013 from both natural increase and migration.
Everyone needs somewhere to live. Property is not something everyone can suddenly decide to do without. And Australia simply does not have enough houses to meet its population demands. There is a lively discussion on the topic of housing demands here, with ABC’s Alan Kohler.
The Urban Development Institute of Australia have also stated that Australia does not build enough new housing to support its growing population. You can read their article here: http://abode2.com.au/enough-new-housing-support-growing-population/
While housing prices do fluctuate over time, the market is still much less volatile than other forms of investment such as the share market. Yet, I’ve never quite understood why, for some reason, some people see it as being far more acceptable to lose money in the share market than they do if prices in the area of their investment property fall slightly. I’ll keep working on figuring that one out
Even when housing prices fall slightly, you still have possession of your asset! It still has the ability to produce an income for you and to increase in value.
High Capital Growth
Many new investors become concerned with the outcome if the value of their investment property falls. Well, it has to be said….
the prices of property does fall, but it also rises again.
This is why property investing is best considered over the long term.
To remind you of this, I’m sure you’ve been in a situation where your jaw has dropped when you’ve heard what seems like a ridiculously low price an older generation family member purchased a now highly valued property for, many years earlier.
In Australia, through boom and bust times, property has historically continued to rise in value.
When your investment property is selected in the right location you have the ability to gain significant capital growth over time. In general terms historical statistics show that well selected properties can double in value every 7-10 years.
An example of one of the properties in our portfolio:
Purchased 1999, 3×1 Unit
Purchase price: $108,000
Current value: $420,000
So, after 15 years, this property has come close to doubling every 7.5 years.
Our equity growth has been $312,000 in that time.
When you do this on a couple of properties, you can soon have a nice accumulation of capital growth within your portfolio.
Each property you purchase can return you a significant income from your tenants, whether it’s commercial or residential.
You’ll be in a great position when your investment properties replace your J.O.B. income and allows you real freedom and lifestyle choices.
There are loads of properties and deals out there that will return you a positive cash flow from day one and these are the ones you should have your eye on.
Many of our initial properties were purchased using a negative gearing strategy, but as our knowledge of investment strategies has increased, we’ve made changes to our portfolio (and continue to), to reach a point where every property returns positive cash flow.
Still asking the question Why invest in property?
Jan Somers has written a fabulous book Building Wealth Through Investment Property which was one of the best selling business books of the year when it was released and is still a great read, especially for newer investors. In fact, copies can be hard to get hold of, so if you can get your hands on one I highly recommend you grab a copy to read on these cooler winter evenings.
Here’s to your success!
P.S. : I would love to hear how YOU feel about property investing. Leave a comment below and share your “what” and “why” with us.