Invest in land - that is where the growth is: Custodian

Invest in land - that is where the growth is: Custodian
Invest in land - that is where the growth is: Custodian

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I have a client getting 100 percent average growth and returns on his investment portfolio year on year. He’s a department head of one of Australia’s top four banks. He’s not alone – I have many clients getting plus 100 percent returns year on year.

The question I often get asked is ‘what are they investing in?’ But that would be the wrong question.

The big question is: what do we want property to do for us? 1,973,000 or around 8 percent of all Australians own an investment property.

Only 18.9 percent have two properties, 5.5 percent own three, 2 percent own four and 0.9 percent have six or more. That tells us less than 2 percent of the population are using property to build wealth.

Around 7 million Australians own real estate.

The three main reasons to buy a property are: to live in, for income or for capital growth.

So what do we want an investment property to do for us? Two things: give us income and/or give us growth.

The general rule of thumb is the higher the income the lower the growth (i.e. commercial property) and similarly the higher the growth the lower the income.

So when we buy an investment property we need to be clear about our primary objective: growth or income.

I’m a growth-focused investor. Income is important but growth is the focus. The only part of a property that grows in value is the land. Rule number one for me is 40 percent land content.

So how do you get 100 percent plus per annum figure? The answer is compound growth

98 percent of investors make the biggest mistake you can make – they’re simple investors. They know two questions to ask: ‘what are my returns and when do I get my money back?’

When it comes to property they have one mantra; ‘location, location, location.’ Generally the best location is close to where they live.

Simple investors buy with a view to then sell. Compound investors focus on growth and use this growth for leverage, enabling them to grow their portfolio on their initial investment. Some very important factors then come into play with the strategy. For example the bank you use is vital – you must get a copy of the bank valuation and resist cross-collateralising your own home.

And to top it all off, Australia’s population growth is 1.5 percent-2 percent p.a. Custodian investors have their land bank strategically placed in growth areas where the average population growth rate is over 6 percent p.a. that’s more than three times the Australian average. ‘

Land is the commodity and land is the focus.

John Fitzgerald is CEO of Custodian Group. He founded his company in 1981 and has since bought, sold and developed more than 10,000 properties in 4 states of Australia. He wrote the 7 steps to Wealth in 1998 - now in its 7th edition. Get a copy at getthebook.com.au.

Tags: 
Land Value Investment Portfolio

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