The Property Factor To Investment Success
Thursday, May 1st, 2008 Subscribe To Our Feed
If you’d like to create wealth in property investing, you are certainly in good company. Real Estate is probably the best asset class available, as well as one of the best investment vehicles, for wealth creation purposes. If you look at Australia’s ‘BRW Rich 200 List’, or the ‘Forbes 400 Richest Americans’ list, or whichever list is available in your country, and check to see where most of the people on the list generated their fortunes, Real Estate will likely stand side by side with Business as the vehicles with which more people created their wealth than any other. Just ask Australia’s Wealth Coach Hans Jakobi. Sports people and entertainers may often claim the newspaper headlines, but they really only account for a very small proportion of self-made millionaires.
So what makes real estate stand out over the other asset classes? There are four primary factors to real estate that make it a such a ‘class’ asset class, if you’ll pardon the pun, for wealth creation. These are:
1. The Leverage one can achieve when purchasing investment property. Leverage relates to the proportion of the purchase price that banks are usually willing to lend against real estate purchases, typically 80% of the property price, but this can be higher. Leverage adds power to your investing because you can put a 20% deposit into a property, and if it increases by 10% in value within the first 12 months, you will have actually earned a 50% return on your invested money.
2. The demand for property: everybody needs a roof over their head
3. The limited supply factor for property. Unlike apartments or condominiums, real estate with a land component has a limited supply factor. Property developers can always build new high rise developments to dilute the supply of apartments for a particular area, but they cannot dilute the supply of land available.
4. The price inflation that occurs on property. This can be due to growth in the economy over time, overall inflation in the economy, or simply demand in an area of limited supply.
We expand on each of the above 4 factors in much greater detail in our article on Creating Wealth with Real Estate, and reveal in detail the 4 factors that play a part in the price inflation of real estate. It is this price inflation, together with the high degree of leverage which one can obtain when purchasing investment property, that makes it such a choice asset class for wealth creation. Do not fail to also check out our companion article on assessing high growth investment property. Ensuring the application of the right selection criteria on the investments you purchase will have a huge bearing on the investment returns that you will obtain over time.
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