As median house prices continue to peak across the country, young first home buyers are watching and worrying as their ‘Aussie Dream’ slips away. Many have given up on the prospect of buying property, as you believe it’s too expensive. Don’t be disheartened. Property is still one of the best assets to invest in, so I want to spend a few minutes here outlining how you can use your resources to their best potential.
There are many advantages of investing in property. It is a stable, high-performing asset that allows you to increase the potential return of your asset by using a bit of leverage.
Stability: Property is a very stable asset – there hasn’t been a property crash in almost 130 years and Australian markets continue to see steady and consistent price growth. Even after the GFC caused the greatest financial disaster since the depression, property prices only declined by around 4%.
Performance: The average annual growth rate for property (Sydney, Melbourne and Brisbane) between 1992 and 2016 was 6.6%. For the ASX, that figure was 5.5%. Over the last twenty-five years, property outperformed shares by 30%.
Leverage: Financial leverage refers to using debt to acquire additional assets. If you hypothetically saved $100,000 to invest; you have two options:
1) You can invest the full $100,000 without leverage.
2) You can use the $100,000 as a 20% deposit for a $500,000 property.
This leverage allows you to hold a large asset with a relatively small investment. For example: If Sophie uses her $100,000 to purchase a studio apartment in North Sydney worth $500,000, she now owns $500,000 in assets. With the property market increasing by 6.6% each year, in ten years time Sophie’s apartment will be worth $947,000.
On the other hand, Jayde decides the property market is out of her reach, and puts her $100,000 into the share market. She has $100,000 in assets. As the share market increases by 5.5% per annum, her shares would be worth $171,000.
Because Sophie was able to leverage her money into a bigger asset base, she achieved a much larger return on investment.
As your North Sydney mortgage broker, I am here to help you recognise the vast potential that exists within the property market . I want to help you plan positive steps towards your wealth creation.