Why being a property investor is the best decision to make
Why choose property investment over other asset classes? Well, there are plenty of good reasons. Here are just a few of the main ones.
Say you save $100,000, you can go and put that into shares, or buy silver or gold (which won’t give you a return) and access $100,000 worth of those assets. But with property, you can put your $100,000 in, and then go and get a loan and buy a $500,000 asset. So now you’ve got an asset worth $500,000, rather than one worth $100,000. If it doubles in value, your $500,000 turns into $1 million, rather than your $100,000 turning into $200,000.
Wealthy people don’t look at how to save money, or what they can sell their time for, they look at their net worth position and their cashflow position. Property creates an income. If you have income producing properties that bring in cashflow, the cashflow pays for the debt, pays you for living and then can pay for more assets. And it has a compounding effect. Properties that were worth $100,000-300,000 not that long ago might be worth $600,000-700,000 now and the rental returns are paying down the mortgages. The properties are paying themselves off.
Properties need someone to build them. For someone to rebuild them, it’s going to cost a lot more than it did the first time, because inflation has hit the bricks, the tradies, the sparkies and the paint prices. Everything’s rising in value. The more the prices of bricks, building materials, goods and tradie incomes go up, the more risk is being removed from the property you’re purchasing, because to rebuild that property is going to cost a lot more. The impact of inflation is tremendous.
Outsourcing the work
You wouldn’t want to go and collect the rent or deal with tenants in person. You can employ a property manager to take care of all the day to day work involved. So it’s more of a passive investment than anything else.
Leverage from equity
Say you buy a property for $200,000 and it rents for $300 a week. It’s bringing in that rental income and going up in value, but unlike gold and silver, Bitcoin or most shares, where you can’t go back and pull the equity out of them; with a property you can go back and say OK the property’s gone up in value from $200,000 to $300,000, I want to go back to the bank and ask them for more of a loan.
You go back to the bank, the bank values it at $300,000, they give you 80% of that and suddenly your loan is $240,000. Your old loan was worth 80% of $200,000 which is $160,000. So there’s $80,000 that you’ve got in extra equity. You can use that money to go and purchase another property.
What about the risks?
The biggest one is probably availability. If you wanted to sell the property off and collect your money, you’d have to put it on the market, find a buyer, do your due diligence, etc. it might take you three or four months if you wanted to sell it. So it’s important to be holistic with your financial strategy.
Let’s get physical
Property is a physical asset. It can’t disappear overnight like value in a company. You can see it, feel it, touch it. And you can add value to your investment. Maybe by renovating it, or just painting it. You can’t do that with shares. You can’t walk into BHP or Woolworths and start painting the shop and adding value to it.