Invest | Why Invest In Residential Property?

Median Priced Residential Property Is At The Low Risk End Of The Investment Scale.

The first aim of any investor should be to not lose money. Therefore an investment that has a good track record of steady capital growth with few drops in price and even fewer large drops would be attractive.

This is a very good description of median priced residential property in any medium to large city in the USA, Canada, Britain, Australia, New Zealand and many other countries.

If you plot a 20 year graph of such residential property and compare it to the price graph of the virtually any share over the same 20 years then you will clearly see that property represents a much lower risk than the stock market.

In fact you will find that virtually any bank will loan you a higher percentage of purchase price on median priced residential property than they will on the purchase price of their own shares. That says to me that the experts at the bank think that buying residential property is a better investment than owning a bank.

You Can Leverage Your Cash Investment To Return High Profits.

Leveraging returns is a strategy whereby you earn returns on a larger capital base that the amount of cash that you invest. Let's look at an example with residential property.

If you buy a residential property with a cash deposit of 20% of purchase price plus another cash amount of 5% of purchase price to cover purchase costs, then you have put in cash of 25% of the value of the property. If the property goes up in value by 10% in the first year that is a 40% return on your cash investment.

In reality you also collect rent and pay running costs and loan repayments. Once you factor all this in over a 20 year period with typical capital growth, interest rates and so on, you generally get an average annual return of 25% to 30% on the cash you outlay.

This is an extremely good return on cash especially when you consider that it is coming from a low risk investment. Normally to hope for anywhere near this rate of return you would need to go a long way up the risk ladder. This combination of low risk and high returns makes residential property very attractive.

You Can Leverage Your Increasing Equity.

There is a second form of leveraging that you can capitalize on with residential investment property. As your property goes up in value you can borrow against the equity that you are accumulating in the property. In this way you can buy a second investment property without having to put in any cash deposit. This can generally be achieved within the first 5 years.

This form of investing is known as portfolio building and further increases both your total dollar profit and your rate of return on cash outlaid.

Why I Like Investing In Residential Property

The combination of low risk with the ability to leverage returns on cash contributed and on equity growth makes residential property my favorite form of investing. Once you learn all the skills of property investing you will also discover that there are many additional ways that you can both lower risk and increase profits.

On top of all that it's also a lot of fun.