“What makes property so darn better than other investments?”
If you have been investing in property, you probably would be smiling right now at the question. If you havenn’t, and you are not asking this question, you should be.
I believe in the WHY… it gives power. It compels people to act and commit a lot more than running after the hype or investing because your friends have told you it’s great. “Everybody who is anybody is doing it…” and “Millionaires said it’s their best wealth vehicle” are true, but not enough for me, and it shouldn’t be for you.
To learn why you should invest in property, it’s best to start with understanding some background information about the industry:
- Property itself is as old as time, it meets one of the oldest and most basic needs in human history, shelter. Aside from food and other body functions, almost nothing stands as equally essential. So it will always be in demand, there is no fad that will fade, and it is not going out of style.
- Property is the single largest purchase an average middle class person makes during his lifetime. 20% of the average household income goes to property (mortgage payments, installments or rent), creating one of the largest industries in the World – 75 trillion dollar global real estate value.
- Every 30 years an entire new generation of billions of people are out there looking for a new home, while old ones are either demolished to build safer, more modern homes, or they are upgraded and renovated to serve more people.
In short, property will always be in demand, and it will always be pressured to grow in value.
That makes it a good industry and a good investment… So what makes it a GREAT investment above other vehicles like stocks, bonds, hedge funds, or art? Well, there are a few features that are particular to property investment and hardly exist in others:
1- A well-located well-maintained useable property does not only generate ongoing income through rental return, but it also generates a steady appreciation in value above and beyond the inflation rate. This duality makes good property an excellent asset, since as a whole it generates monthly cash flow, while growing in value and appreciating (rather than depreciating the way most physical assets do such as cars, office equipment, factory machines, etc.).
2- Walk into a bank and ask them for a loan to invest in the stock market… and a few faces will be staring at you briefly before politely turning you down. You may be eligible for a small personal loan if you present enough as collateral. Now try to do the same with a property, and you will find that almost all banks and financial institutions around the World are happily presenting you with their most competitive products.
Property is probably one of the best options for financial “leverage”, and in Malaysia as well as many other countries – that leverage can exceed 90%. You are given money by financiers in order to benefit yourself, at one of the lowest finance rates of most products. Your income potential is therefore raised by as much.
3- Economic cycles do not significantly affect rental returns or capital appreciation of well-chosen property. There is plenty of historical data that demonstrates that property returns on investment were more consistent than most of the other investment vehicles, and thanks to financing it allows for a much higher return than any other. (Following image shows growth WITHOUT leverage, and without taking rental return into account.)
4- The combination of financial leverage with the dual return, can produce one of the highest returns in the World. It is not uncommon for property to produce between 50 to a 100% return on investment per year for a number of years. That is of course if it is selected correctly and amplified the right way.
So most experts believe whole-heartedly that property investment is one of the best wealth-building vehicles out there. What is good is that in this day and age it is no longer accessible only to the rich and famous, it is widely available for the middle classes and there are many means and strategies by which people can enter the World of property investment with little or no money down.
There are ways to invest in property and get a return without even getting a mortgage or finance.
So when you hear Robert Kiyosaki, Robert Allen, Donald Trump, or any World Class wealth expert talk about property being the cornerstone to their wealth creation plan, now you know WHY…