Why Property?

There are only 3 vehicles for creating wealth: Business, Shares and Property. Which do you think is the most successful? If you said property then I’m afraid you are wrong. Surprised? Read on…

In order to draw a direct comparison between business, shares and property lets imagine that our friend Bill has $50,000 to invest and is evaluation his options.

Business: The world of business has produced more billionaires than the other two put together. The main problem with business is that most people aren’t very good at it. That’s reflected by the fact that 50% of start-ups don’t survive their first year. With just $50,000 to invest, you are limited to the types of business which are still “jobs” i.e. if you don’t keep turning up each day you don’t get paid. More people are ruined in business than ever make it to the big time.

Shares: The most simplistic way of making money in the share market is to buy when shares are low and sell when they are high. Sounds easy right? Assuming Bill can do this satisfactorily, he could conservatively expect an annual return of 5%. So after his first year his $50,000 has turned into $52,500 and after 5 years is a respectable $63,814. Bill has increased his wealth by $13,814.

Property: Like the share market, the property market also increases in value over time. The 10 year average growth rate is just over 7% per annum. So once again Bill could conservatively expect an annual return of 5%. If he uses his $50,000 as a 20% deposit on a $250,000 house and borrows the balance from a bank, then he can “leverage” the banks money and earn the growth on whole price of the house, not just his deposit. After the first year his house is worth $262,500 and after 5 years its worth $319,070. Bill has now increased his wealth by $69,070.

Which would you choose? $13,814 or $69,070? It’s a no-brainer really.

Its also worth noting that most successful business people use property to “park” their money in as a low risk dependable investment that has always and will always increase in value.

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