We often find ourselves discussing the financial gap between someone’s current financial position and what is required for them to retire comfortably. The calculations take into consideration current income producing assets and the ideal annual spending figure needed throughout retirement. Generally, this results in a figure which exceeds $1 million and for many is seemingly unsurmountable.
We’ve found that there are two ways to reduce the gap, one is saving and the other is to grow your wealth. For most, a mortgage, children and living expenses make saving an unlikely option. That leaves growing your wealth as the logical option. This is done through investing with the two primary investment strategies generally revolving around shares or property.
Aside from the stability and less volatile nature of property, the key benefit is leverage. Leverage is one of the most powerful concepts, it has the potential for someone to increase their asset base significantly. Basically, with savings of $100,000 you may be able to purchase a $500,000 property rather than investing in $100,000 or $200,000 worth of shares. Also, banks are far more likely to lend on a property than on the share market.
Let’s assume the banks allow you to borrow an additional $100,000 to invest in the share market and you can borrow $400,000 to purchase a $500,000 property. What this means for an investor is that if both your property and shares grow at 5% per annum, your property gain will be $25,000 while your share values will grow by $10,000. Your property is returning 250% more than shares, all because of leverage. The growth achieved is based on total asset value of $500,000 as opposed to $200,000, in both cases only $100,000 has been invested.
The key to creating wealth, is building your asset base as large as possible and holding for the long term.
Ok, so we’ve established that property is the way to go in terms of growing our wealth.
Let’s have a look at the historical, long-term performance of property in our three largest capital cities.
So, let’s assume you read this article in 1990, some 30 odd years ago and decided to invest in property. Properties at the time were worth $131,000 in Melbourne, $113,000 in Brisbane and $194,000 in Sydney (this is indicated below by the smaller number in brackets which is the median house price in that year).
Had you thrown a dart and invested in any house in Sydney, Melbourne or Brisbane, based on the current median house price you’d have between $406,000 and $711,000 in equity (the larger number is what you would have in equity). Regardless of which city, these figures would have significantly improved your financial position. This is without even considering the wealth you’d have if you had used equity to expand your property portfolio and hold multiple properties.
|2010||$322,000 ($583,000)||$254,000 ($468,000)||$59,000 ($460,000)|
|2005||$419,000 ($486,000)||$412,000 ($310,000)||$207,000 ($312,000)|
|2000||$618,000 ($287,000)||$531,000 ($191,000)||$349,000 ($170,000)|
|1995||$708,000 ($196,000)||$593,000 ($129,000)||$372,000 ($147,000)|
|1990||$711,000 ($194,000)||$591,000 ($131,000)||$406,000 ($113,000)|
|1985||$816,000 ($88,000)||$647,000 ($75,000)||$457,000 ($61,000)|
|1980||$836,000 ($69,000)||$682,000 ($39,000)||$483,000 ($35,000)|
What we’re trying to present is that property is the most viable way for you to improve your financial position and potentially fast-track retirement.
Our approach to property approvals is purely based on research to avoid the ‘throwing a dart’ method, ensuring our clients are achieving the maximum amount of potential capital growth. We did a study on the growth in Blue Wealth approved suburbs in comparison to the average growth across the city. Here are the results:
- Sydney: On average Blue Wealth approved suburbs grew at 88% vs. the 74% growth of Greater Sydney
- Melbourne: On average Blue Wealth approved suburbs have grown at 53% vs. the 41% growth of Greater Melbourne
- Brisbane: On average Blue Wealth approved suburbs have grown at 30% vs. the 10% growth of Greater Brisbane
The critical message to take from this piece, is to take action and secure your future. When you bring research into the equation the results are even more compelling. Be courageous and make decisions that your future self will thank you for.