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You want to invest for your future but don’t know which asset class (shares, property or business) to invest your hard earned dollars into?  This is a question that is posed to us time and again. There are benefits and risks when investing in any asset class however we have personally found that investing in residential property has given us a great return on our investment with the least amount of risk.  You can invest in property even when you have little or no equity, don’t own your own home and have lots of bad debt like we had.

We call property the I.D.E.A.L investment because it provides: 

Income

Depreciation

Equity

Appreciation

Leverage

All of the above are critical factors that the rich use so successfully to build their wealth and which you can also use to build your wealth.

Let us explain further why property has been the I.D.E.A.L investment class for us.

Income – investing in property has allowed us the opportunity to earn additional income on a regular basis through the collection of rent on the property(s).  We use the rent to help pay off the monthly mortgage payments and/or expenses associated with the investment property(s). This along with other benefits allows us to live a comfortable lifestyle while continuing on with our successful wealth creation strategies.

Our long term strategy is to pay down the mortgages and then use the rental income as disposable income to live off.

Depreciation – another form of income that property investing provides us is tax deductions in the form of depreciation allowances. The Australian Taxation Office allows property investors to depreciate the value of their investment properties and claim the amounts as tax deductions against the income. Maximum depreciation benefits can generally be achieved from new properties however renovated older properties can also provide significant depreciation benefits. When we started investing in property, our strategy included purchasing brand new properties with high levels of depreciation so that we could utilize the tax benefits to sustain the investment property while it grew in value. Depreciation schedules can be obtained from registered Quality Surveyors while your accountant should be consulted for tax deductibility of the items on the schedule.

Equity – is why we invest in property. Equity can be defined as the amount that a property has increased in value over time for example, if you buy a property for $300k and after some time it grows in value to $400k then the difference ($100k) is simply termed equity. Equity is great because you didn’t have to work hard to get it, it just happens over the course of time, even when you sleep.  To accelerate your wealth creation the increased equity can then be taken out and used as deposit(s) to purchase additional investment properties. This is basically how many of the well known and successful property investors built their portfolios. 

As our properties grew in value, we used the equity to purchase more and more properties. Equity grew quicker as we purchased more properties which in turn accelerated our capacity to purchase more properties. Each time a property grew in value, we would revalue the property and draw down the available equity to purchase the next opportunity.  Some of our properties have grown by 30% yet had we tried to save this amount of money while working in the “rat race”, we would never have been able to buy more than one property.  Equity has given us the power to buy multiple properties in a very short time frame and grow our net wealth.  

Appreciation – property values increase and decrease just like any other investment vehicle however when you look at property over the longer term, it generally always increases in value and therefore provides low risk investing. We prefer property for this reason and put simply, people need somewhere to live.  We have approximately 120k people migrating into this great country each year and the size of our family units are reducing hence the requirement for more properties for people to live in is on the increase. When looking to buy an investment property we look for areas that are experiencing population growth or are expected to grow in the longer term.  Population growth helps to ensure that there is demand for property and following the supply and demand principal, appreciation in property prices is highest in areas of greatest demand. Our genuine wealth has come from our many properties appreciating in value over time.

Leverage – in property investing terms can be defined as the ability to do more with less. Leverage is by far the most powerful feature in property investing and has got to be one of the many wonders of the world.  Without it we would still be trying to buy our first investment property.  Leverage has allowed us to maximise what we have and to create serious wealth.  Borrowing more on an investment property than what you paid for it is what leveraging is all about. How great is that. You can use someone else’s money ie the banks to grow your wealth.  Banks will lend you upto 100% of the value of the property and in some cases, borrow more at competitive interest rates. Property allows more borrowing capacity than any other investment class because the banks view it as low risk.

Put more simply you are required to put in less of your own money up front when investing in property than you would if you were investing in any other investment class. This means that you will be able grow your portfolio much quicker because you will need less of your own money than you would with other asset classes. If you can at least double the return on what it costs you to own an investment property then you are ahead of the game and on your way to creating serious wealth. The more that you can borrow at 7.5% interest that is returning 15%, the wealthier you will get.    

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