If you already own a property in Melbourne you would know that it is a proven method of creating additional wealth. You may not see it like you would see your bank account balance increasing, but property produces excellent capital growth and most of the equity you have in a property is accessible.
We also know there are other methods of creating additional wealth like cash and shares for example.
Everyone has their own personal preferences to create their wealth, as do I, but if you haven’t yet made a decision on investing in property, let’s do a quick comparison of the effective return on funds invested (ROI).
Cash in a term deposit for example, might give you say 4% to 5% of interest per annum guaranteed, so a fairly safe investment. However, cash does not offer very good leverage.
Shares could give you say 10 to 15% return but is not guaranteed as we know they are subject to rise and fall. I’m not sure what the lender’s rules are right now but you could borrow say 40-60% of the share value, so the return on your funds invested in 1 year could be between 25% and 37.5%.
Property could give you 5 to 7% growth and you can borrow 80% of the property value, so the return on your funds in 1 year could be between 25% and 35%, very similar to shares.
So why property rather than shares?
For me it’s mainly because property is more stable. Shares are more volatile and although they can rise quickly, they can also fall quickly, which potentially can expose me to a lender’s ‘margin call’. If you borrowed 60% of the original value and the value drops suddenly by 20%, the bank might be looking for you to top up this shortfall to bring your loan value ratio back to the 60% allowed.
To avoid this risk then you would need to reduce the amount you borrow and that in turn would reduce the return on funds invested, tipping the scales back in favour of property.
Simply, property investment offers relatively stable and secure capital growth and provides the greatest leverage, resulting in your returns on funds invested at the higher end of the scale. That’s probably why property investment remains a major source of wealth for Australians.
And that’s not all…. When you decide to invest in a property with development potential, you can unlock even more wealth more quickly. By utilising our services and taking the develop and hold approach you can actually create enough additional equity to store in the property you hold, meaning that original equity is back in your hands to use for something else, like your next property development!
So before making a commitment to invest, give us a call and we can help you find the right property to develop.