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Who Are Our Residential Property Investors?

Many people think that anyone who owns an investment property or two must be ‘out of their league’. After all, only a minority of the population owns any kind of second property.

The idea that property investment is only possible for those on high incomes has become such a commonplace that it appears to need no explanation. In fact, statistics show that a low income is no barrier to the acquisition of wealth through investment in residential real estate, just as a high income is no guarantee of success. Many people on high incomes live up to their income and have nothing to show for it in terms of appreciating assets. Statistics show that most Australian residential property investors are ordinary wage earners - family people preparing for their retirement.

Anyone who is starting on the residential property investment path knows the truth of these statistics. Most investors, especially in the first ten years do their budget on a week-by-week and year by year basis, doing without the new cars and expensive holidays favoured by their less forward-planning friends. Investors include young singles who choose to live at home, paying board and spending the rest of their ‘rent’ on paying off a mortgage (with help from the tenants who live in it!) and young couples whose mortgage is nearly paid off who decide to increase their debt or delay starting a family to buy second property.

How do they do it? The typical couple might start by buying their own home or apartment for say $400,000. To do this they have probably saved about $60,000 deposit including stamp duty and legal fees. Let’s say their combined income is $65,000 - the main breadwinner bringing in $40,000 and a part time working spouse $25,000.

 Depending on income and expenditure it may take the average couple ten to fifteen years to pay off their home. The family home usually needs to be about fifty percent paid off before the owners can start buying investment property. Most people should be in a position to start talking to their accountant and shopping around for finance after about ten years. By then their home should have doubled in value, increasing their equity and making the remainder of the loan a proportionately smaller amount of the total value of the house.

Depending on lifestyle and expenses, most couples with two average incomes could buy another investment property every two to five years. Rents go up but repayments stay the same, (provided you choose the fixed-interest loan option). Most people are ready to buy again when rent on their first investment increases sufficiently to cover repayments.

Rate of acquisition will vary from family to family depending on a host of factors, * but but most people starting to buy investment property between the ages of thirty five and forty could end up with a portfolio of between five and ten properties by the time they reach fifty five.

*(Those wishing to start investing in property should consult their accountant and BANK to determine their individual circumstances).

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