Safe as houses. Why property is the best place to invest
Deciding to invest (and having the funds to do so) is a big financial milestone. However, to maximise the outcome of this decision, you need to figure out the right place to put your money.
Property has long been known as one of the best ways to grow wealth in Australia. It brings a double meaning to the term ‘safe as houses’.
Take a look at why investing in property is a safe bet, based on figures and forecasts.
Over the past 25 years, the national median house value has risen by approximately 400%. So if you purchased a home in 1995 for $250k, it is worth well over $1 million today. For many properties around the country, this figure is substantially higher.
The graph below makes it very clear why property makes sense as an investment:
You can see the market dipped in 2008 and flatlined briefly in around 2012-2013 but overall the upwards trend for both houses and units is impossible to miss.
Why invest in property?
When you invest money in shares, you can usually only invest the amount you have. For example, let’s say you invest $100k in a savings account. At current interest rates of around 2 per cent, even with compound growth, after 25 years you would end up with around $160,000
With property, you can borrow up to 90 per cent of the value of the property. This means you can leverage $100k to invest in a $1 million asset. If you choose the right property you can expect not only a steady return on your investment (often well above the 2% paid by a savings account) but also rental income and considerable tax benefits.
Current predictions forecast that in 25 years, a $1 million property could be worth around $4,400,000 (based on an average growth rate of 6 per cent). You don’t need to be a mathematician to see why property makes more sense than a savings account.
What’s more, once you have purchased your first investment property and allowed some time to pass, you can leverage your increased equity to buy another property. Over time, you can establish a strong portfolio and a more secure financial future.
While it’s true that the value of property can fall, historic data shows this never happens for long. This makes property a less volatile choice for investors who are savvy and patient.
It’s also worth noting that as a property investor, you are providing shelter to families who cannot afford their own home. This may one day be your own children.
Your investment property, twenty years from today
As Australia’s population grows, the demand for quality rental properties will increase.
Investors can expect sustainable growth over the next 10 to 20 years, assuming they buy in the right locations.
If past performance continues, the median house values around the country could look like this:
If it feels difficult to fathom the average house value in Sydney being $6 million, consider that in 2012 it was $500,000. By the start of 2019, this had more than doubled to $1.1 million, with many homes being far beyond that price range. The slowdown at the start of 2019 still left savvy investors with strong positive growth and the market was quick to recover.
Making a ‘safe as houses’ investment
While the above information spells out the potential of investing in property, it would be unwise to assume it is impossible to go wrong. Buying in an area with no new infrastructure or job opportunities, paying too much or failing to secure tenants can all result in disappointment, and are common mistakes made by inexperienced investors.
Which is why it makes sense to seek the support of a well-connected buyers agent who specialises in investment property. Backed by extensive research and successful past experience, they can help you navigate the tricky waters of property investment and enjoy a successful outcome.
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