In property terms when we talk of a doubling cycle we are saying “How Many Years Will It Take A Property To Double In Value?” Since no one really knows what future growth will be our best guide for future performance is history.

It was Winston Churchill who once said:

“The farther backward you can look, the farther forward you are likely to see”.

So let’s look back at capital city median house prices between 1970 and 2005.

The above table shows that in Brisbane the average annual rise between 1970 and 2005 was 11.2%.

This table is a little outdated now. Current July 2009 figures show Brisbane’s median house price as $432,101 (as reported by RP Data).

By my calculation, a jump in median price from $8,500 in 1970 to $432,000 39 years later represents an average annual increase of 10.6% – or 6.8 years to double! To be a little conservative I tend to use an eight years to double assumption when doing my own calculations.

It needs to be remembered, however, that these are median prices and include “the good, the bad and the ugly” properties. Median price for an area identifies the point at which there were an equal number of properties sold above and below that price. It takes into account all sales; good and bad. Careful property research and selection should ensure an astute investor will see annual growth at levels better than the advertised medians.

See also article by Katrina Lockhart “Making Sense Of Median Prices”

This Theory Matches My Own Experience

Most, if not all of my properties have doubled in value in under eight years; I have seen this happen in as little as five. It is important to understand, however, that capital growth plotted on a graph will never show a straight line. There are boom times and flat times and most of the growth tends to occur at the latter part of each growth cycle. I look for property that I have confidence will show an average of 10% (or better) growth over the long term.

My only WA property, in the suburb of Thornleigh (Perth) went from $110,000 to $320,000 in about five years. This growth did not come about because of any improvements I made to the property, I didn’t; it was pure growth (and some ‘hysteria’ in the Perth market a few years ago which I am sure would have seen some correction now if I were to have it valued again).

Being a conservative realist I would say that the real doubling value of this property since the market has corrected will average out at about seven or eight years, so I’m happy. Actually I am really happy because when I saw the market peak (understanding a correction was inevitable) I quickly had the bank revalue it. Doing this allowed me to pull out another $206,000 from the increased equity, which I then used for further investments.

I am happy to sit on it now for the next seven or so years by which time I expect that I will again be able to access the equity. My other 12 properties, which are all in South East Queensland, tend to be a little more consistent showing boom times followed by flat times, rather than the boom times followed by bust times evidenced when one graphs the price movements for the Sydney and Perth markets.

Will The Next Decade See More “Boom” Times Than “Flat” Times?

I do not have a “crystal ball” and cannot predict what the future holds. I do know that we currently have the fastest population growth in our history, the biggest undersupply of housing ever and the lowest interest rates in 49 years. Personally, Nick and I see this as a “perfect storm” and expect our properties to perform exceptionally well.

Webinar (Tomorrow, Sat 18th July)

I’ll explain more of my property equity retirement story as a co-host on Nick’s webinar tomorrow morning. Nick will clearly explain what’s going on in the real estate market right now, where he sees it heading and why. I recommend you being a part of it – click here.

Enjoy your week end,

Martin Bell
mrd Customer Care… because investing is personal