Australian real estate has been on a boom phase for the past 16 months. Research group CoreLogic, reported that as of January 2022, dwelling values in Australia have risen 22.1% over the past 12 months. Over the previous quarter, capital city dwelling values rose 3.9 % while regional cities jumped a mighty 6.4%.
Investing In Property Is All About Strategy
If you’re looking to get into property investing or simply taking advantage of booming prices to move up to the next rung of the ladder, you need a smart strategy.
Understanding the difference between capital appreciation and acquiring an income-generating property asset is the key to enjoying the benefits of leveraging existing equity to create generational wealth.
Income Producing Assets
Income-producing assets include those classified as a duplex, dual-income, boarding houses, rooming houses and the increasingly popular tiny homes model rented as Air BnBs. The higher the cash flow, the more likely you are to satisfy the Lender’s serviceability criteria and keep building your property portfolio.
What Is An Equity Property Asset?
Equity assets are properties in prime locations or properties that have been held in an investment portfolio for several decades, properties renovated to increase their value and thus their equity. Another example is buying a property with small subdivision potential designed to create equity.
Savvy investors know which levers create more equity or generate an income (cash flow) to grow their property portfolio thus nurturing generational wealth.
The Joy of Creating Generational Wealth
Generational wealth is defined as those financial assets including property, share market investments or cash. Anything with a monetary value you pass down from one generation to the next.
Why should you care about passing wealth down to the next generation? Well, most parents want to see their children enjoy access to options as they choose how to live their lives.
‘Generational wealth’ can play a positive impact on opening up these options for future generations.
The Power of Leverage
Ever wondered how property investors manage to keep expanding their property portfolio without having to slog away saving another deposit?
They use leverage. They harness the equity generated by rising property values in their existing portfolio to buy a second property. This property then also hopefully increases in value over time, allowing the investor to rinse and repeat the process.
Investors who have seen the equity in their properties escalate substantially over the last two years can leverage that equity to buy further properties.
Leveraging equity in this way minimises risk by keeping your cash safely in your pocket rather than having to dip into your cash savings. In a market where properties are increasing in value faster than you can save a deposit time really is money.
And the property market isn’t going to hang about waiting for you to get that deposit together. CoreLogic reported sales volumes rose 44.1% in the 12 months to December 2021 and transaction volumes through December 2021 were estimated to be 44.8% above the five-year monthly average, at 58,252.
Your increased equity created during Australia’s property boom enables you to dip into the market generating tangible generational wealth.
Having the right property investment strategy is crucial to creating generational wealth in your lifetime. Once you sell an investment property, the equity you’ve built up in it is also sold. So, unless it’s imperative that you must sell, try to preserve that precious equity. Use it to leverage your way into a more valuable property thus increasing your net worth.