Why waiting to buy property means risking your wealth
Australian property owners have made a lot of money of the back of property investment, in fact in 2021 alone, total value of Australian properties went up by two trillion dollars!
The lucky country has enabled some property investors to achieve wealth, security and early retirement. Mind you, 71% of Australians never buy more than one property, which tends to be their residence.
Unfortunately, one property is not going to fund a comfortable lifestyle in retirement. For that you will need at least 5 investment properties according to Michael Yardney from Property Update.
Latest housing occupancy data from Australian Bureau of Statistics (ABS) shows that only 4.6% of Australian own 4 or more properties.
There is a saying when it comes to property investment, 'the best time to buy property was yesterday, the second-best time is now'.
Depending on where you are in your career, life, earning power, your options are to either start a property accumulation strategy or wait for that perfect moment in time when the stars align at just the right angle. Just remember, there's always opportunity cost for waiting.
Savings account vs property investment
The secret to investing can be summed up in a few words – the power of compounding growth and time. The earlier you start the sooner you finish and the bigger your nest egg.
Think of the snowball rolling down the hill, small at first then gaining momentum and growing bigger and bigger closer to the end.
Saving interest rate averaged over the last 30 years is around 5%, say you deposited $100,000 30 years ago, today that account balance would be approximately $348,122.
Let's say you decided to buy a property instead of putting money in a bank account and after little research you found that average property price in Adelaide to be around $100,000. Today that same property is worth around $614,3000.
The power of property is that you can leverage into investing using other people’s money (the banks) and having others pay for the investment (the tenant and the taxman if negatively geared).
Yes, you would have to sell the property to realise any profits. This doesn’t discount the fact you could buy a property, rent it out and at the end of 30 years hold a debt free investment property that's worth nearly double the return on your bank deposit.
The cost of waiting
So why are there so many aspiring property investors failing to take the plunge into the market or end up with only one or no investment property?
Statistics tell us we are living longer and most will either run out of funds in retirement or face the prospect of retiring on the pension. Statistics also tell us only 1 in 100 is wealthy, only 3 in 100 are financially independent - not a very good outcome for working hard for 40 years.
The cost of waiting could be ending up with nothing and on a pension.
Risk aversion
And why aren't more Australian buying investment properties (assuming that they can afford to)? The answer, investors seem to be focused more on the risks than the potential rewards.
They worry about everything from interest rates going up, to having bad tenants, to maintenance issues, to property prices falling, to the results of the elections – all the what-ifs cloud their mind and moving forward is impossible.
There are always risks to investing, but these can be mitigated by having a sound financial and investing strategy, a sound plan, guidance from someone more experienced and being driven to towards the rewards investing can bring.
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This article does not constitute advice; readers should seek independent and personalised counsel from a trusted adviser that specialises in property, a tax accountant and property design specialist.