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.
These are just averages.
The better your property selection -
where you buy, what you buy, how well you negotiate, and how you financeyour
property investment- the better your returns could be.
By the way, that's another great thing
about the property.
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
$700,000.
In seven years' time, the same property
would be worth $1.4 million and in 14 years it would be worth $2.8 million.
When you own a property worth $700,000
usually have some equity or your deposit and you borrow the rest. Imagine you
had a 20% deposit and borrowed the balance ($560,000) from the bank.
After seven years you would still owe
the bank $560,000 (assuming you had an interest-only loan) and your net worth
would have increased from $140,000 to $840,000 (the value of the property $1.4
million dollars less your mortgage of $560,000.)
That's an increase in your net worth of
six-fold even though the value of the property only doubled.
What would happen over the next seven
years?
Your property would once again double
in value to around $2.8 million and your net worth would increase to $2.2
million dollars.
Your initial $100,000 investment would
have increased in value 16-fold while your property only increased in value
four-fold.
This amazing increase in your net worth
is due to the combined effects of compounding and leverage.
RealRenta
has all the tools that a property manager has but for less than ¼ the cost
of a property manager.
You can now manage your Residential,
Commercial or share/student accommodation property
Join now
and the cost is less than a cup of coffee a week to manage your rental
property.
RealRenta
also has a free vision, so why not check it out.
Jason Gwerder
Thursday, 1 February 2024
