How would you like to earn up to $40,000 a year for doing absolutely nothing – other than making one good decision?
That’s how much an average investment property can contribute to your financial future.
And once you’ve made the commitment to buy the property you don’t have to lift a finger. The property will go on increasing in value by up to $40,000 a year, year after year.
“Owning an investment property today really is like having a silent employee,” said Rob Farmer, the CEO of Australia’s largest metropolitan property agency, RUN Property.
“This employee property will work for you, day and night, every day of the year, earning money all along the way.
“It won’t argue or complain and can contribute to your bank balance almost as much as you can earn working 38 hours a week,” Mr Farmer said.
“Investment property can be a magic formula for financial freedom – and most people don’t fully grasp the multiplying value of it.
“This is true even if you buy an average property in an average location. You don’t have to be wealthy to buy in the best locations and you don’t have to be Einstein to work out which property to buy.
“Doing your homework and studying the market will obviously accelerate the profit you make, but even basic properties can do extremely well over the long term,” he said.
Mr Farmer, whose company manages properties valued at more than $10 billion throughout Australia, said most people knew property was a sound investment but not everyone appreciated the true power of capital growth over time.
Data from the peak real estate industry bodies in each state proved the real value of property, he said.
Owning an investment property in an average location during average economic times would have earned $42,000 a year over the past five years in Melbourne, according to statistics from the Real Estate Institute of Victoria, Mr Farmer said.
That’s $3500 every month or more than $800 every week, month after month, week after week.
The figures relate to the median Melbourne house price which in September 2010 was $565,000 – up 59 per cent from five years earlier when the median price was $355,000.
In Brisbane, property owners have earned an average of more than $28,000 a year over the past five years.
Data from the Real Estate Institute of Queensland shows that Brisbane’s median house price increased 46.3 per cent to $447,500 in the five years to September 2010.
In Sydney, the median house price jumped from $517,000 in September 2005 to $630,000 at the same time in 2010. That’s an increase of $113,000, or 21.8 per cent in five years, according to the Real Estate Institute of NSW.
In the harbour city, property owners have gained an average of $22,600 a year over the past five years.
That’s not money in their pocket, but it is growth in the value of their asset which can be converted to cash on selling or used as equity to increase borrowings for more properties in the future.
Mr Farmer said the statistics supported the often-repeated statement throughout the property industry that good properties double in value every seven to 10 years.
But the figures covered each of the capital cities and did not account for savvy investors who bought in superior locations that had exceptional price growth beyond the median prices.
And because the figures are a measure only of capital growth, they ignore the added benefits of renting the property to tenants to increase income and the broad tax and depreciation advantages of owning an investment property. They also overlook the extra growth in value that renovations can do to a property.
Mr Farmer said two average investment properties could earn up to $80,000 a year and prime properties could easily increase in value by more than $100,000 a year each.
Many clients of his property agency had built a solid financial future by methodically investing their money in property and as their properties grew in value, reinvesting their equity in more property.
“Lots of people who we work with at RUN Property have built real wealth for themselves and their kids by simply following the basic principles of property investment,” Mr Farmer said.
“Many of them are conservative people who have found themselves richer beyond their wildest dreams due to the increased value of their portfolios over time.
“Even people who have only one or two properties are forever glad they invested when they did because when you look back, every property purchase looks cheap compared with what it’s worth today, Mr Farmer said.
He cites the example of Corinne Mesnage, 44, a nurse who bought her first investment property in the year 2000 for $210,000 and since then has bought three more investments with a total value of $2.2 million.
Ms Mesnage’s first investment was a townhouse in the Melbourne suburb of Chadstone which she bought for $210,000 and the property is now worth about $500,000.
Ms Mesnage admits her investment strategy simply involved using the growing value of her properties to fund the purchase of the next one.
“I encourage everyone I meet to do the same as I have done. It is easy but people do not realise the opportunity they have,” she said.
“There is gold sitting in front of people but they say ‘what if’ and they see something else. Anyone who wants to do it (build a property portfolio) can do it if you follow the rules of the tax system and have a clear plan without over-extending yourself.”
Mr Farmer agrees. “It’s not rocket science,” he said. “All it takes is the money for a deposit, which can come from the value of your own home, a commitment to hold the property for at least a few years and the world can be your oyster.”
RUN Property is Australia’s largest metropolitan real estate agency which manages property valued at more than $10 billion and has a dedicated team of sales specialists in Victoria, NSW and Queensland. RUN Property – sales, leasing and management. For more information visit www.run.com.au