Wealth through property investment

You don't have to be wealthy to invest, but you do have to invest to be wealthy.

For most people saving hard is just not going to give the results you want.

And while superannuation is good, most people will find it won't be enough to live on in retirement. Superannuation is designed to be a forced savings method, while property investment is a method of wealth generation. Investing in real estate is a great choice - and it's simple.

Real Estate as the Foundation

I like to use an analogy.

When you hang curtains in your home, the foundational piece that the whole curtain requires is the curtain rod. A strong, properly measured and installed, level rod will ensure your curtains always perform at their best. Without a strong rod, the curtains will always be at risk of falling to the ground.

Like so with your investment strategy. You need a strong foundation (curtain rod) for all your long-term investment strategies. Property has proven over hundreds of years to be the most stable investment platform in all nations. All other investment choices you make from your discretional spending should follow the foundational spending on property investment.

Spend on your foundation now, and add to it with other more risky strategies over time as your property portfolio matures.

To build wealth and prepare for the future, you need to take some definite action now, like investing in real estate. Investing in property is simple. Residential property investment is secure and most people can afford it. The property investment decisions you make now will have an impact on your wealth in the years to come.

Property is less volatile

Property prices are much less likely to rise and fall sharply due to current market sentiment. This is because real estate markets are effectively commodities. Everyone has to live somewhere! In large cities particularly, buying and selling is a common occurrence, and the markets maintain their own energy.

As a commodity, the market prices for property is driven by supply and demand within the current market. If there are more properties available than people to buy them, prices will be stable. If the reverse occurs, where there are more buyers than available properties, then the prices will generally rise.

The only time when property prices will not rise when demand is in excess of supply is when properties are unaffordable for the current wage levels. This will dampen (or lower) demand, thereby lowering pressure on price rises.

The same holds true for the property rental market. All the fundamentals are the same, except the rental market and the property market tend to be counter-cyclical, or when one is up, the other is steady or down.

Property prices are very predictable

Again being a commodity, you can pretty easily understand where the current real estate market is trending with some quick assessments by observing some simple leading indicators:

• Watch the Auction Clearance Rates at the weekly city auctions. Lower than 50% clearance, the market is pretty flat. Over 50%, it is probably OK, over 65% it is heating up, over 80%, boom time; and
• Watch the For Sale signboards and how long they take to have the SOLD sticker. Shorter times means stronger demand and rising prices. Longer times means slowing demand and steady prices.

Property prices rise in the long run

Over the last 30 years, major capital cities in Australia have risen by an average of over 9% per annum. This means property prices have historically doubled every 7 years. Property investment is a long-term wealth generation strategy, not a method of forced savings or a short term speculation.

Property offers greater leverage

Banks will not lend on any other asset class as much of the value of the asset. In some cases, banks may lend up to 100% of the valuation of the property providing Lenders Mortgage Insurance is taken by the borrower.

A secure investment

When you invest in residential real estate you buy something that is real. Bricks and mortar. Your investment property will always have value, and you can sell whenever you like.

Compare that to shares. If the company you invest in goes broke your shares will be worthless - and there have been plenty of examples of that in recent times.

Compared to many other investment strategies, investing in property is both lower risk and higher yield. That's why real estate is the investment vehicle of choice for many Australians.

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