@HiEquity
Have the values of your houses gone up more than inflation / average wage (pick either one, I assume unless you actually lost out the answer is yes for either)? If so it is by definition harder now than it was when you did it isn't it? If you can think of way in which houses costing more by either definition makes the situation the same I will be impressed.
Unless you are saying that people trying now should have lower expectations.
You invested in the biggest property boom of all time and made money, nice luck and fair play to you but are you claiming you could do this now or that your skills when starting out were sufficient to do the same now?
We bought 2 IP's in the same area, 2 months apart back in 2003 - one was a 2 x 1 unit for $105k and the other was a 3 x 1 house for $151k.
They are now both worth $220k and $300k respectively. I'd say that is more than inflation and the average wage rises.
Now, was it luck? Partly - we didn't expect the level of growth we have received.
But we made our own luck - we researched the area first thoroughly to assess it's cap growth potential; it's long term employment viability; the location of the properties in the area to amenities, the rental demand and rental return, depreciation, tax benefits and so on. And then we acted.
And, they were way below the median price at the time. The area is still going up according to my constant close scrutiny of the area (despite the recent D&G, and our rents have gone up from their original 9% and 9.5% return at purchase). One is now 13.5% and the other is 10.8% - not as good, but it is a long-term GEHA contract, so there has been no vacancy since day 1, so we're happy.
We started buying IP's in 2001 because I knew that over the long term their value went up at a historic average of around 5-6% per annum. We knew we could leverage from one property to two and so on - something you can't do with cash if it is left in the Bank.
The fact that there was a boom about to happen was of irrelevant, and we didn't know it was about to occur anyway - just lucky I guess, but amazingly, every property we have bought since 1985 (PPoR's until 2001) have just kept on goin' up steadily.
Our plan was to go for long term growth, but also get good cashflow in the short term to make them easier to hold. Had the spectacular growth not occurred, and it was only at the historical average, we would still have a property worth more than we bought it, and costing us nothing to hold -two free properties, in effect.
What we have done is not hard. Anyone who can scrap together a deposit for even a $150k property (the $105k ones don't exist now) and get a Bank loan for the rest can do it.
We could do it again today, because the system for buying for us has been cashflow first, cap growth second, which has increased at varying rates. The values could still stagnate or even fall in the short term (and some areas will), but it doesn't matter if the cashflow is there.
People will say "oh, you'll get a better return from gold or cash right now", but this is a fallacy when you compare the leverage effect of property on every after tax dollar you invest in either cash, gold or an IP.
If I have $30k to invest, and my ING account gives me a healthy 8% (today's returns but not so 2 years ago) then after 1 year I'm
$2,400 richer before tax and inflation on my capital.
If I put the same $30k into an IP worth $130k plus purchase costs and borrow 80% from the Bank, and the property goes up by 5%, my nett worth before tax is
$6,500
Now, that's a better return and if I've bought a cashflow positive after tax property, which means I will have more money coming back to me than I payed out, even after the tax position is accounted for, then the return is even better.
And, if I select the right property in the right areas, then that 5% could conceivably be even more than that. I re-invest this after-tax cashflow back into the IP loan and wait.
After 3 years, I leverage the equity in IP no.1 and do it all over again - this time using no actual cash for IP no.2, with the same result, and the rents have gone up on IP no.1.
NOW what is the return on my original $30k?
This has been our formula to date, and it has cost us pretty much nothing to grow our portfolio to this point. There have been some tougher times along the way, but mostly good.
Mind you, we started from a good position in 2001 through having a good deal of equity already from all our PPoR's that we have kept moving into along the way. But we at least started with a PPoR first. Without that sacrifice; saving the deposit, going without, etc initially; we would not be in our current position.
Meanwhile, my $30k in the Bank has become worth about $25k.
If the average 25 year old earning $50k or so per year can't do this (even just one IP) by the time they are 30, then there is no hope for the planet.
Now, if that show on ABC (which I haven't watched) would have someone like me - an average person not on a stellar income in IT or law etc - on the show to represent the Average Joe who can and did do it, to explain this scenario and how VERY DO-ABLE it is (recent boom notwithstanding), then the younger people of today may just find the incentive to do it.
But they won't do that; it's not good TV and doesn't fit their mantra of always siding with the academics and often financially maligned lefties, or the down-and-out section of society that love to hear re-affirmation from others about why they are so poor.
The problem is, not many of them are willing to give up 20% of their wages to save a deposit, give up their weekends for 3 months to trawl around neighborhoods looking at houses, sit on the internet for 2 hours everyday for 3 months to research an area to find just ONE potential property out of 100's - like we do.
