HAVE YOU EVER SEEN INVESTMENTS THAT OFFER A 25% P.A. RETURN?
How about 30% p.a. or 40% p.a.? – No? And if you did, like most people, you would assume that there must be something fishy going on! Is it only common sense to assume that the higher the return the higher the risk??
There is an old maxim: ‘if the return looks too good to be true then it probably is!’
Nevertheless, while such returns may sound too good to be true, we run the risk of ‘missing out’ if we automatically reject everything that looks exceptional.
Not all investments are ordinary. One of our staff bought a very inexpensive unit in an outlying area to the south of Brisbane at the ‘top’of the market’ (2003) and just two years later the properties in the development were fetching 45-50% higher. It was shrewd buying and what a great capital gain in a stagnant market? ‘Too good to be true?’ – Not on this occasion that’s for sure! But maybe it was just a one off. We prefer to look to a longer time frame because that is where the more reliable big percentage capital gains are to be made.
In the longer term; I know people who have made over 60% p.a. average equity growth over the past 7 years, growing less than $50,000 in equity into a whopping $1.5mil… And all in ‘safe as houses’ residential real estate.
Now that’s worth crowing about!
So remember, if you automatically reject everything that seems ‘too good to be true’ you are restricting yourself to just ‘ordinary’ investments.
$$ THE GOLDEN RULE IS… ‘USE YOUR EQUITY, NOT YOUR BANK BALANCE’ $$ …using existing equity means you can effectively borrow 100% plus enough extra to cover legal expenses, stamp duty and so on, without using any of your own cash!’
As an example lets say you buy an investment property for $250k and assuming the growth rate is 10% (based on Brisbane’s average doubling cycle of 7 years).
For an 80% lend you would need $50k of existing equity (plus costs) – or $25k for a 90% lend.
In the screen grab below you can see that in 10 years you would have grown $339,000 in equity with that one property. In 15 years $699,000
A good return, but hardly earth shattering and certainly not enough to retire on!!
In example 2, below, however, we bought:
- a $250k property…
- then, 2 years later a $350k property…
- then, another 2 years later a $400k property…
- then, a $450k property…
- Now we have a different picture…
…in 10 years the total equity growth is a staggering $1.01mil – that could work out to around a 40%p.a. return depending on your starting equity. In 15 years it would more than double again to … wait for it … $2.51mil. Now that’s what I call financial independence!!
Using the equity growth as a deposit for the next investment and so on, is what sound property investment is all about.
So as you can see, you, a 40% return is not as far fetched as it may have first appeared… and certainly not high risk at all. This is why the creation of wealth through property investment is such a safe way to reap great rewards in the longer term!
This example is quite realistic as I know people who have bought over 10 properties in 7 years and have well over $1mil in equity growth.
Oh yes, and remember you don’t have to sell your properties to tap into that equity growth; nor should you! It makes no sense at all to ‘Kill the Goose’ that is Laying all the Golden Eggs!
The article followed in the same vein as many regarding increasing rents and low vacancy rates. They showed the price of a 4 bedroom home in Brisbane increasing from $185k in 2001 (rent $245pw) to $360k in 2006 (rent $340). That’s a 95% increase in price and a 39% increase in rent. The Gold coast over the same period showed 100% increase in price from $189k to $378K (rent up 54% from 340pw to $370pw). In Caloundra 2 bed units rose from $176k to $372,500 (112% – who said that units don’t show capital growth!) with rents increasing from $155 to $230pw – 48%.
Michael Matusik was quoted as saying that the trend was set to accelerate – “we anticipate that up to 40% of households in urban Queensland will rent in the next 10 years or so. He also commented that with rising rents there would be an increasing number of people sharing accommodation. An interesting fact was that 80% of all property investors earned less than $75k p.a. You don’t need a huge income to invest.
Source: GC Sunday Mail
SOUTHEAST Queensland is facing a critical land shortage that will have a ‘calamitous’ effect on housing affordability, a leading industry body predicts.
The latest land supply report released by the Property Council of Australia said that within 20 years the region would face a ‘disastrous’ land shortfall.
Residential Development Council executive director Ross Elliott said the cost of housing would continue to increase as the land shortages became worse in the next two decades. “Currently, the shortage is just under 13,000 lots. In 20 years that will be 185,076 or almost 15 times worse,” said Mr Elliott.
“Imagine how that will affect housing affordability if we don’t make changes now.
The REIQ president, Peter McGrath, said the population had ‘exploded’ in the southeast corner and the market had been unable to keep up. “The South East Queensland Regional Plan underestimated the rate of release,” he said. “The last six years have been incredible. We have seen massive growth.
The Courier Mail newspaper ran a similar story about the report and said “The report, the first of its kind in Australia to look into the future of land supply, found state and local governments would need to revise current policies and release additional land or face an “unprecedented disaster” in housing affordability.” As investors perhaps “unprecedented disaster” should read “unprecedented opportunity”?
Source: GC Weekend Bulletin
QUEENSLAND’S love affair with poker machines is set to wane but an unrelenting population boom will continue to boost State Government coffers.
Interstate and overseas migration is tipped to continue unabated this financial year, delivering a tax bonanza through increased stamp duties, payroll and land taxes and fuelling hopes for tax cuts.
Acting Premier Anna Bligh yesterday released the mid-year review of the Budget, which revealed Queensland was growing at nearly twice the rate of the rest of the nation. Queensland’s growth is now expected to hit 4.75 per cent, nearly double the national rate of 2.5 per cent.
Source: Courier Mail
QUEENSLAND may soon be forced to put up the “no vacancy” sign for rental properties as unprecedented demand dries up the once plentiful market. The lack of available rentals has fuelled big increases, in some cases caused by landlords and agents conducting auctions between desperate customers.
Some tenants have resorted to offering to pay 12 months rent up front just to secure a home.
Households are also swelling with families sharing to ease the burden of rent, which went up 15 per cent in southeast Queensland last year.
The latest statistics show Queensland’s rental vacancies at a record low, plummeting to below 1 per cent in some areas compared with 10 per cent in 2000.In Brisbane, soaring demand is set to worsen this month as more than 35,000 international students arrive in the state to start university.
Source: Sunday Mail Newspaper
The 2007 PRDnationwide report has now been released and Mr Lawless said two trends – the outer-lying areas close to working nodes and industrial precincts, and suburbs with unique aspects including acreage blocks, river frontage and infrastructure plans – would continue to push higher-than-average growth.
“People working in these areas would like to live close by and are being locked out of the housing market due to low levels of affordability.
“We are also seeing a lot of investors in these outer working areas because the rental yields are typically very high, due to a low buy-in price and high rental rate.”
“We have found that the growth appears to be returning to the marketplace relative to 2004-05, with the number of suburbs recording at least 10 per cent growth over the year almost double from last year’s low of just 18 suburbs to 33 suburbs.”
“Two thousand and seven will be similar to the second half of 2006, with now being a good time for buyers to position themselves strategically in the marketplace for the higher levels of growth likely to return at the end of 2007 and into 2008.”
Source: Courier Mail Newspaper
A 1960’s style housing recovery is expected in 2007 and beyond, due to changing demographics,changes to superannuation and most importantly the tight rental market, according to independant property analyst Michael Matusik. “Rents are rising, the rate of growth is escalating and it is no surprise that investors (long term holders and not speculators) are back in the market.”
Source: GC Business News
SOUTHEAST Queensland’s growing pains are set to pile even more pressure on both the residential and commercial property markets.
New home buyers and renters will continue to bear the pain as the influx of 1200 new residents a week puts immense strain on the construction sector.
“We are not building enough houses to house the growth in the population. We are getting pressure in the rental market, vacancy rates are very low and rents are going up at twice the rate of inflation,” Housing Industry Association Queensland executive director Warwick Temby said.
“These are early signs that there’s pressure in the market for either more price growth, or more construction, or a bit of both.”
Source: Courier Mail Newspaper
INFRASTRUCTURE has been the buzz word on policy makers’ lips for the past couple of years.
Ministers and bureaucrats alike talk up the need for more dams, roads, hospitals, schools and everything else required to accommodate Queensland’s exploding population.
And it’s this seemingly recent revelation to plan for the future that is the core of the conundrum in which Queensland now finds itself. To its credit, the Beattie Government has addressed the problem. Its unveiling in early 2005 of a grand 20-year, $66 billion infrastructure dream was well received.
See maps of government infrastructure plans (Feb 2007) for SE Qld and Northern Queensland.
Source: Courier Mail Newspaper
