mrd

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!