How the rich make their money

An article in BRW explained that if you think the wealthy make their money slaving over a desk like ordinary folk you’ll never be rich. 

They cited who combed through the US Internal Revenue Service’s latest annual report into big earners and broke down how they earned their keep, which was as follows:  growth money coin

  • Wages and salaries – 8.6 per cent
  • Interest – 6.6 per cent
  • Dividends – 13 per cent
  • Partnerships and corporations – 19.9 per cent
  • Capital gains – 45.8 per cent

The clear message from this appears to be, if you want to get rich invest for capital growth.

Now if you’ve been following my blogs you’ll know that this is what I’ve been saying for years. I’ve always recommended buying well located residential properties and building a substantial asset base that will one day replace your personal exertion incomes.

If you think about it, as you build an extensive property portfolio, over the years the vast majority of your profit will be capital growth and not rents.

It’s really the same for homeowners

If you bought your house 10 years ago for $250,000 and it’s worth half a million dollars today, the bulk of your wealth is not from your savings and paying off your mortgage but from capital growth.

And as we’re moving through this new property cycle, it will be much the same over the next decade.

While the value of the average Australian home will once again double over the next 10 – 15 years, if you want a level of financial independence you need to invest in residential real estate like the “Rich” do.

While at any time there are hundreds of thousands of properties for sale, not all will make good investments. In fact most won’t. So I use my…

My 5 stranded strategic approach to property investing

To ensure I buy a property that will outperform the market averages I use a 5 Stranded Strategic Approach.

  1. I would buy a property that would appeal to owner occupiers. Not that I plan to sell my property, but because owner occupiers will buy similar properties pushing up local real estate values.This will be particularly important in 2015 when the percentage of investors in the market is likely to diminish.
  2. I would buy a property below its intrinsic value – that’s why I avoid new and off the plan properties which come at a premium price.
  3. In an area that has a long history of strong capital growth and that will continue to outperform the averages because of the demographics in the area.
  4. This will be an area where more owner occupiers will want to live because of lifestyle choices and one where the locals will be prepared to, and can afford to, pay a premium price to live because they have higher disposable incomes. In general these are the more affluent inner and middle ring suburbs of our big capital cities.
  5. I would look for a property with a twist – something unique, or special, different or scarce about the property, and finally I would buy a property where I can manufacture capital growth through refurbishment, renovations or redevelopment rather than waiting for the market to deliver me capital growth.

By following my 5 Stranded Strategic Approach I minimise my risks and maximise my upside as each strand represents a way of making money from property and combining all four is a powerful way of putting the odds in my favour.

If one strand lets me down, I have two or three others supporting my property’s performance.

Want more of this type of information?

Michael Yardney


Michael is a director of Metropole Property Strategists who create wealth for their clients through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit

'How the rich make their money' have 5 comments

  1. August 24, 2012 @ 11:32 am Harley Greer

    Thanks – interesting article .

    I agree you can’t save your way to wealth, but will this work in today’s era of lower capital growth?


    • Michael Yardney

      August 24, 2012 @ 11:35 am Michael Yardney

      Thanks for the comment Harley
      In today’s era of lower inflation (around 2 or 3%) you don’t need double digit capital growth to create wealth, but using the 4 stranded approach I outlined, makes the chancee of capital growth stronger


    • January 15, 2015 @ 1:48 am Addict

      That is why you need to choose well, including an an area of above average potential. City averages are only a starting point. Michael’s point that you want it to appeal to owners to lift value in the long-term is really important, you just don’t come across that point much elsewhere. In a downturn, owners will not sell (they have to live somewhere anyway) whereas investors may have to.


  2. August 24, 2012 @ 4:05 pm opinder

    Hi Michael,
    ..Really spot on and right on mark in this era of doom n gloom and negativity.

    Thanks for this


  3. August 24, 2012 @ 7:54 pm Andrew

    Thanks michael, this is really good article. I think a lot of people are fearful, but i am in my mid 30’s and should be looking 20 years away not even 10.


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