Promoted by Aus Property Professionals
Like all popular sayings, “As safe as houses” is based on fact.
Lloyd Edge, Director and Founder of Aus Property Professionals explains why property is the most trusted investment of “mums and dads” and major corporations alike:
Property is called “real estate” because you can see and touch it. Even if you buy off-the-plan, the land exists – and the building soon will (all going well)!
On the other hand, the only evidence of owning shares is a piece of paper or an email message. And you can never be sure what’s going on behind closed boardroom doors.
As investments go, property markets are easy to understand. There isn’t a lot of jargon to confuse the average buyer. Of course it’s wise to do research before investing in property, but it isn’t rocket science, especially if you obtain the help of an expert such as a buyer’s agent who will be on your side during the process. The same fundamentals apply to properties everywhere.
Mr Edge explains that Australian property has increased in value at an average of 11 per cent since the early 1900s.
That’s comparable to the stock market, but historically property has been more stable than even “blue chip” stock indexes. And unlike companies, land can’t go broke in an economic downturn or through poor management. There will always be demand for land and housing in well-located areas that people actually want to live and work in. Again, you can’t just buy anywhere, but well-chosen and well-located property is a good investment. The fact that property takes longer than shares to sell, even by auction, makes it a less volatile form of investment.
Banks and other financial institutions lend more money for property purchases than any other investment.
Property loans are the biggest component of every bank’s profit because property has proven to be the safest type of investment. The typical bank’s loan-to-value ratio (LVR) is 80 per cent, often higher, and interest rates are lower than for other types of assets.
And property is ideal for “leveraging” – taking advantage of your portfolio’s rising equity to obtain more loans, increasing your holdings even faster! More about that later...
Property is a more flexible form of investment than many people realise.
Different strategies can be used for different financial situations and property types. Mr Edge explains that Aus Property Professionals tailors different strategies to each individual client. They include long-term capital growth, cash flow, renovating for profit and developing. The latter is a favourite among Aus Property’s clients, with the equity that can be made through building duplexes.
Banks offer different types of loans to suit different strategies too.
When it comes to types of properties, the sky’s the limit! Houses, duplexes, villas, townhouses, apartments – and that’s just the residential market. Mr Edge says his company does not only focus on houses because it really depends where the investor is looking to buy and what their strategy is.
“If you purchase an inner city apartment where the demographic is for people to live a low-maintenance lifestyle then they can make great investments, as long as you buy wisely. Small, boutique blocks of apartments and townhouses, something with a bit of character or the opportunity to add value, make better investments than huge high-rise blocks of apartments,” he explains.
“It’s important to buy with owner occupiers in mind. Whether you are buying an existing property to renovate or building a duplex for equity gain, you need to keep in mind that one day you will need to sell and it’s best to keep the owner occupier market in mind for better returns.”
Property offers more financial leverage, and the more leverage you have, the quicker you can grow your wealth, Mr Edge explains.
“For example, if you purchase a property for $500,000, you can put down a 10 per cent deposit and borrow 90 per cent from the bank. If that property increases in value by 10 per cent you will have made $50,000. Mr Edge explains that you have only contributed 10 per cent of the purchase price, but you get 100 per cent of the growth,” he says.
“If the property goes up in value by 10 per cent in the first year, then you have in effect received a 100 per cent ROI (return on investment) on your initial deposit. The good part is if the original deposit and other purchasing costs came from equity you already had in another property, it would mean that you have borrowed the full cost of the purchase of the new investment property, not needing to put any of your own cash in. This, in my opinion, is the best way to build up a property portfolio. I believe you should only have to pay cash for your first deposit and then equity can finance future deposits, but you need to always buy well-chosen and well-located properties.”
Property is an essential commodity in the community, so governments encourage “bricks and mortar” investment and development.
Tax benefits include deductible expenses such as the interest on loans, repairs, maintenance and management fees. Depreciation on buildings is another benefit.
First home owners are eligible for special one-off grants in most Australian states and territories. There are also incentives for off-the-plan and new constructions. “For example, in NSW the government has a $5,000 rebate for stamp duty on new property which really benefits our clients who purchase land to build duplexes on,” Mr Edge explains. For further information: http://www.auspropertyprofessionals.com.au/fyi/research/
This is the key driver of property investment.
Demand for rental accommodation is increasing as Australia’s population continues to grow faster than the supply of new housing. That puts pressure on property values and rental prices, forcing them higher.
The message for anyone with the ability to invest in property is clear: buy now!
But it’s important to buy carefully to maximise the financial return and minimise risk. Prices can be volatile in some locations – mining towns for instance – so it’s best to seek professional advice.
In a nutshell, investing in property is a great way to accumulate wealth over the medium to long term. It’s a great way to achieve the lifestyle you want for yourself and your family.
Read the story about how Aus Property Professionals founder Lloyd Edge went from being a high school music teacher to owning a portfolio of 12 properties worth $7 million. He is now helping other investors realise their financial and lifestyle dreams.
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