Why property investing is a way to build great wealth

Everyone wants to earn the kind of money in their lifetime that will allow them to do the things they want to do and to retire with enough money to keep living the same lifestyle. 

The vast majority of people don’t earn their dream income through working for somebody else; in fact, most of the world’s richest people became that way through their own business ventures or by investing in property. Share trading is another way many people have achieved real wealth. 

Let’s look at these three ways to build wealth, finishing with my favourite ­– property. 

Shares

The great thing about shares is that, technically, you can start with almost any amount of money. However, in reality, to make serious gains you need to invest big to earn big. For 95% of us, that will mean taking out a loan to invest in a decent-sized portfolio. Some things to consider are: 

• In most cases, you will need to outsource the management of your portfolio to a fund manager or stockbroker, which involves fees. I wouldn’t recommend going it alone if you are just starting out.
• Share investing can be volatile, and no matter how good a company is, if the market falls, nearly everything falls with it. The majority of the nation’s superannuation funds have typically been placed in the share market and, following a crash, many 65-year-olds have found they can’t afford to retire as planned.
• Shares can be de-valued at anytime, leaving you with no assets.
• Shares are liquid and can be sold. 

Business

Owning a business can be a great way to build wealth, certainly through making money along the way but, more significantly, when you sell it. The more profitable you can make your business and the more systems you have in place for running it, the greater chance you will have of maximising your sale price. If you’re thinking of starting your own business, or already have one in place, some of the things you need to consider are: 

• It often takes many years to establish a business and, statistically, 80% of small businesses fail within their first five years.
• Owning a business is hard work, and the hard work doesn’t end when you lock up at the end of the day. Even when you’re not working in the business you will find yourself thinking about it after hours. Interest-based businesses never close.
• There are often a lot of fixed overheads and set-up costs, including premises, fixtures and staff. These overheads are often payable whether the business is open or not. In addition to this upfront injection of funds most businesses need a ‘buffer’ to get them through the slower times. This is particularly relevant for seasonal businesses like snow-gear rental.
• If you take on staff you can end up spending more time managing them than you do the business itself. Managing people, with all the OHS and other worker rights and responsibilities that go along with it, in some ways is more complicated than ever. You must make it a priority to understand your HR responsibilities to your employees.
• It’s important to have an exit strategy, including a succession plan. Will you pass on the business to a family member or sell it to an unknown third party?

Property

Property is often seen as an easy-to-understand investment because we all live in a home and therefore we all have reasonable knowledge of what is good real estate and what is not. A quick snapshot of investing in property includes: 

• Well-chosen residential property is guaranteed to rise in the long term because of the basic fact that the land is in short supply and our population is increasing.
• Tenancy and maintenance issues must be managed properly. Your property investing must be treated as seriously as you would any other business venture.
• Property gives you more leverage than most other investments because banks often lend 80-100% of its value.
• Property is a steadier investment and the rule of thumb with residential property is that it tends to rise by 7–10% per year over the long term.
• Property leverages your time.  Property is one of the most passive investments you can buy, which is great if you value the limited time you have away from work.
• Tenants will help pay the mortgage. It is important to keep your properties well maintained so that your tenants stay for longer.
• Property will never be worth nothing – the land value alone will always increase. 

If you read the annual BRW Rich List you will see that every year about 80% of people on that list for the most part made their money through property, or they hold their money in property. So why not follow their lead? 

I’ve been investing in property since a young age and over that time I’ve learned a lot, both through listening and doing. I’ve paid attention to property experts along the way and then I’ve taken action. I’ve made sure I completely understood what I was getting myself into – both the potential risks and the benefits. 

Education is the key to successful property investing. Read books, attend seminars, listen to the experts. Take all that knowledge on board, process it, and then go and buy. The longer you procrastinate, the more opportunities will pass you by. The way to make money in property is to choose wisely, then wait. The waiting is important. Of course you have to maintain your properties well and stay on top of any tenant issues, but the wealth has to be built over time. The longer you wait to jump into the market the longer it will take to build wealth. 

As with all investments, property rises and falls as other economic factors change. Property tends to rise for a number of years, fall slightly, flatten and then rise again. So the key with property investing is to have enough cashflow to support it in the short term – it will always rise in the long term. 

Melbourne is currently experiencing a flat period in the market, which means it is bound to rise again in the medium term. Investors take note: now is the perfect time to buy into the Melbourne residential property market. There are plenty of bargains to be had but they won’t last forever.

Property investing is a great way to build wealth.

Melissa Opie, aka “The Property Lady”, is  a multi-award-winning buyers’ advocate, bestselling author and managing director at Keyhole Property Investments.  The team at KPI act for investors and owner-occupiers Melbourne wide from $400,000 to $5,000,000. You can follow “The Property Lady” on Twitter.