If you think the wealthy make their money slaving over a desk like ordinary folk you’ll never be rich.
This was confirmed in an article a while ago at Inc.com 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:
- 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 $300,000 and it’s possibly worth well over half a million dollars today, meaning 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 property cycle, it will be much the same over the next decade.
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The value of well located "investment grade properties" will likley once again double over the next 10 - 15 years, so 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 6 stranded strategic approach to property investing
To ensure I buy a property that will outperform the market averages I use a 6 Stranded Strategic Approach.
- 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.
- 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.
- I look for a property with a high land to asset ratio - this means the land underneath it is valuable - but remember well located apartments have an attributable land value underneath them.
- 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. Remember... around 80% of your property's performance will be due to it's location and about 20% will be becuase you own the right proeprty in that location. 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.
- 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 6 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 three or four others supporting my property’s performance.