Buy. Hold. Repeat.: Australian real estate ownership - made simple

By Paul Gittany

Ever wanted to get into real estate, but felt daunted by it? Don't know where to turn for good advice? Don't fret. You're not alone. Did you know that renters significantly outnumber home owners in both the 20 - 34 year old age bracket? This book will help you understand the basics of real estate ownership, whether you want to buy your own home, or buy 25 investment properties. Owning real estate isn't easy, but the rewards of ownership are huge. There has never been a better time to get into the market than now.

This book will teach you the basics of ownership, what to look for and consider for your situation, and how to shop for the deal that's right for you.

• Language: English
• Publisher: Tablo Publishing
• Release date: Jun 29, 2021
• ISBN: 9781649698254

Book preview

Chapter 1. Why?

How often have you felt overwhelmed about the future? Whenever we consume news from the mainstream media, it seems there is some tragedy or disaster awaiting us. Propaganda from the media has led us to believe that there is a scary creature on the verge of confronting us at any moment.

Human behaviour – Are we hardwired for investing?

Homosapiens are the only known species to be instinctively concerned about our future. We seem to make decisions and take action on the basis of how it will affect us tomorrow, rather than the present. While birds and animals focus on securing food for the day, humans instead want to ensure they have enough food to store for tomorrow.

The future influences the present just as much as the past.

Friedrich Nietzsche

Capital Growth

Investing into real estate is essential for financial security. It is undeniable that investing in a physical asset, like residential property, will continue to prosper for a long time. This is particularly true in Australia, given the challenges the residential property market experienced in Sydney alone was not enough to hinder the overall upward trend of the market nationally.

Capital growth is the main benefit of investing in a quality residential investment in Australia. Sentiment is the collective belief of market participators who follow a specific investment. So, for example, the sentiment of the price of Australian grown beef in smaller and underdeveloped Asian neighbouring countries is strong. This is because it is well known that Australian cattle are high quality and abundant, unlike more locally sourced beef.

The same logic is true for residential real estate within a market like Sydney, given it is abundant, generally high quality, and available for purchase. Therefore, investors are putting their hard-earned money into an asset class with strong sentiment. It follows that there is a large majority of people who believe that the residential property market is always present and in demand. This results in capital growth, which is the inherent dollar value of an asset should it be placed for sale on an open market of willing purchasers and sellers in an arm's length transaction. The value of property is the amount that individuals are willing to pay, and the aggregate growth of the asset since the investor purchased it.

For example, if I buy a two bedroom unit off the plan for $650,000, I know that in the future I will be able to sell that unit for a high profit. I would not be aware of the expected profit at the time I purchase it, nor what it would sell for, as that is usually decided by the individual who is willing to pay for it. However, it is safe to assume that my original capital of $650,000 will flourish over time. It has been long accepted that the longer the capital is held for, the more it will grow in time..

Capital growth will vary for not only each asset, but also each asset class. Some assets have inherent and external features which cause them to grow at a much faster rate compared to others.

Consider the following example: A $580,000 brand new apartment in a western Sydney suburb, compared to a $800,000 older apartment in an inner city suburb of Sydney. Which will grow faster? Let us consider some important features:

The reality is that it is not possible to calculate how quickly one piece of property will grow over the other. If there was a scientific method and it was reliable, then it would result in the market having a completely different economic landscape compared to what we currently have now.. Predicting the future value of an asset is not simple, and it would require a prediction that is likely unreliable, even if the most skilled and resourceful individuals were to attempt it. Looking at the potential future value requires a holistic view and it necessitates an understanding of the economy, society, and government in which the property is based. This process is made even more complicated given the Australian property market needs to be viewed in the context of a global economic environment as well.

It may take a lifetime to resolve the mystery of market direction, but in order to put things into perspective and decipher what influences the market, let us consider the following snapshot.

This list is not exhaustive, and is rather a simplistic view of the economy. However, it demonstrates how a matter so far removed from our insulated way of living in Australia can have an impact on what people are prepared to pay for a residential living space in a market like Sydney. Overall, the easiest way to consider these features is by grouping them into the termdemand. The more demand for a specific class of asset, the higher the price will increase. This is proven for the majority of individuals who are willing to buy and the price they are willing to buy at. The greater the number of individuals who are interested in the same asset, the stronger the demand becomes. This is the embodiment of ‘capital growth’.

One of the main benefits of investing in a market like Sydney, is that irrespective of the suburb, property type, age, or any other factor, they all share the geographical boundaries of Sydney in common. This means that, unlike other cities, the urban sprawl is limited by geographic boundaries.

Sydney is bordered by the pacific ocean, the great dividing range, and nature reserves. This implied that there is insufficient amount of land available to meet the high demand of buyers. This supports why the Sydney housing market is consistently outperforming other areas, and remains on an upward pricing trend. While there are other factors that may influence this outcome, the natural land formation does not allow for the geographic footprint of Sydney to extend beyond the boundaries of the mountains. Therefore, the availability of residential properties is in short supply and restricted to those who can afford it.

I would give a thousand furlongs of sea for an acre of barren ground.

Shakespeare

Cashflow – the gift that keeps giving

The average sale price of a free standing home in Sydney during 2021 is approximately $1.1 million. This means that anyone who owns their own home in Sydney, on average, owns an asset worth around that figure. Leaving aside leverage on the asset, this is a substantial amount of money, and has proven that there has been an upward growth trend in the preceding years.

However, this is not