Why Invest in Property?

Why Invest in Property?

When you invest in property, you can think of it like running a small property business. Much the same as a large business, you’ll have two types of money:

• capital – with which you can create more money; and
• cash flow – money to fund your daily activities.

How you use these two types of money is quite different.  Capital is a large sum of money or investment that works for you to create more wealth. Capital is the type of money you need to buy appreciating assets, things that increase in value over time.

A majority of Australians are salaried employees, ie: we work and then we receive payment and superannuation contributions from our employer. Regrettably, some of us use our total salaries as cash flow which is rarely sustainable in the long term.

Having a savings plan is a form of cash preservation that may become capital.  However, this only works when you have the discipline to stick to a savings plan. In other words, you need to put aside a portion of your cash flow so that it becomes capital.

Now that you have your capital, how does it work?

Say you make a 10% capital investment of $41,000.00 on a property of $410,000.00 in total value (including legal fees and stamp duty). Now let’s say the property has growth of 6.5% in the first year – this is not unusual for certain Australian markets. The total value of your property at the end of year 1 is now $436,650.00. In effect, you’ve made $26,650.00 on your initial capital investment of $41,000.00.

That’s a 65% return per annum.

The trick is finding the types of properties that have maximum growth and understanding how you can minimise the amount of your own cash flow required to maintain your investment. This is where 1Group can help.

Get in touch with us for a complimentary discussion on how we can help you convert you cash flow into a capital investment or for a review of your current portfolio.