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Research shows the age of the average property investor in Australia is 43 years. Of these people, 82% own one investment property, 6% own two investment properties and 1% own more than two properties.
These statistics highlight two important facts:
firstly, many people don’t consider real estate investment until they start thinking about retirement and
secondly, most of today's real estate investors have grown up during a period of rising real estate values. In other words, most real estate investors invest primarily for capital growth.
Historically house prices have risen by around 9% per annum compound during the past thirty years.
Taking Sydney house prices as an example, if you bought a median price house 20 years ago, in 1983 for $79,200, that property could today be worth $450,000.
If we project this level of growth into the future, then today’s median priced home of $450,000 will be worth $2.5 million in another 20 years time.
This seems to imply that regardless of how much money you lose through negatively gearing your real estate holdings, you'll eventually make it up in capital growth.
This is certainly the story pushed by the property marketeers.
Even though I also have grown up in this environment of rising property prices and have made a lot of money from the capital growth of my property portfolio over the years, I think it is a dangerous strategy to blindly follow the capital growth scenario.
First of all, property prices have fallen as well as risen. Some of the strongest falls occurred during the Great Depression in 1932 and in 1974 following the stock market crash.
You may be aware that during the Thatcher years in England, people literally walked away from their properties because the mortgages were higher than the value of the properties.
For many of us, these are events that have occurred during our lifetime, therefore it could happen again.
Secondly, the number of baby |
