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Reproduced with permission.
For the majority of Australians, property is their most significant financial investment, even outstripping superannuation. Residential property is the nation’s single largest and most valuable asset class, with a total estimated value of $7 trillion just announced by Core Logic. To put this in perspective, the share market total capitalisation is $1.8 trillion and superannuation is $2.2 trillion.
That’s a lot of money in property and potentially a lot of opportunity, but like most lucrative opportunities, it’s not without risks.
The unfortunate reality is that most people are unsure about the elements that drive property values and overall returns. Similarly, consumers are confused by the vast quantity of opinions across the property industry.
While it can be shown that property, or real estate, is historically the safest type of investment, many new and existing investors are making big mistakes that jeopardise achieving their desired outcomes.
Being a safer form of investment does not protect you from poor decisions that lead to below par returns on your investment. The opportunity cost on a $600,000 purchase with a capital growth return of 5% vs 6% capital growth over 30 years is $1,000,000. This illustrates why we should invest time in ensuring we make wise choices when selecting property. The reality, despite all the myths and hoop-la in the media and from property spruikers, is that we do not need to own lots of property to create wealth to fund our ideal lifestyle. We just need to make great decisions each time we purchase property. Two to five quality properties is enough to set most people up financially and to provide some choice as they transition to the flexibility stage of life.
Selecting a good quality asset is the final decision in the property buying process. Firstly, you need to set short and long-term goals and develop a plan that maps out your life’s property decisions. There is no point purchasing a property now that will not allow you to buy your future ideal home or that you will have to sell before getting a return on your investment, as often is the case. There is the saying that goes ‘plan in decades, think in years, work in months and live in days’. Planning for accumulating life’s most valuable asset should not be exempt from these words of wisdom, don’t you think?
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All the best with your property planning!
David Johnston is the founder of Property Planning Australia and the author of ‘How to succeed with property to create your ideal lifestyle’ and ‘Property for life – using property to plan your financial future’.