The latest Pain & Gain Report by CoreLogic highlights two key important points when buying an investment property – firstly it is a great way to create personal wealth and secondly you have to take a long term approach to achieving this outcome.
These points are highlighted by the fact that during the March 2016 quarter the vast majority of properties (90.8%) resold at a profit. In fact, nearly one third (31.9%) of homes resold for more than double their previous purchase price.
The report shows that across those homes which resold at a profit, the total value of this profit was recorded at a massive $12.9 billion with the average gross profit recorded at $239,855. But more importantly, the data also highlights the fact that ownership of property, whether for investment or owner occupier purposes, should be seen as a long-term investment.
It reveals that across the country, the small proportion of homes that resold at a loss had an average length of ownership of 6.2 years. In contrast, it revealed that for all sales recording a gross profit, the average length of ownership was recorded at 10.2 years, while homes which sold for more than double their previous purchase price were owned for an average of 17.5 years.
So the longer you can hold a property, the greater chance you can increase your profit. This is because the property market moves in cycles and if you buy a property at the top of a cycle and then re-sell a few years later during the bottom of the next cycle, you are likely to make a loss.
However, if you hold your property for 10 to 20 years, you can ride out these property cycles and create significant personal wealth over the long term. That is why it is very important to start buying property as young as you can and hold onto property as long as you can.
The start of the new financial year should prompt many young people to start thinking about buying a property for investment purposes. If you have built up enough equity your owner occupier home, then this can give you the ability to buy an investment property.
With interest rates now at record lows, now is a great time to consider buying an investment property.
When you buy an investment property, it should be part of a long term plan to hold it as long as you can. With this in mind, focus on locations that over a 10 year period might be transformed by new infrastructure or re-zoning that may substantially increase the value of properties over time.
Your research should also include studying property statistics over the past decade to determine that areas can deliver capital growth above the general market average. By picking a location where your property will achieve a higher rate of capital growth than the general market will mean that over time the equity level in the property will increase and that will give you the ability to purchase more investment properties.