Property , and specifically Pakistan property is a great investment. It is not only harder to lose money in property than the stock market, but with property faisal hills islamabad you also benefit both from the steady growth of capital as well as from the rental income. Inflation protection is provided by the rental income, which grows over time. Property investment is tax-efficient because you can take out loans to purchase property.
Let's take a look at these advantages and other benefits of investing in residential properties in a bit more in depth.
1. 1. A market for investment that isn't completely dominated by investors
First of all, you need to realize that some seventy percent of all residential properties are "owner owned" and only 30% is held by investors. This means that the residential market is the only market where investors are not dominant. It is simple to say that even if the value of property falls by 10%, 20 percent, or even 40%, we need to live in our homes. Many homeowners will opt to let their house out for rent rather than selling it. This is contrary to the stock market, where a sudden drop in price could quickly trigger a massive collapse. The value of property can and will fall, but they are not as unstable like the stock market. In addition, they provide more security and greater security.
If you're still not convinced me when I say that residential properties are an investment that is safe, you can ask banks. The banks view residential property as a good security. They'll loan 90% of the property's value to you. They understand that over the long term, value of the property will not decline.
2. 2. Sustainable growth
Prices for property in Australia tend to fluctuate in cycles. They have historically been successful, with a double in cycles of around 7 - 12 years (which is about 6% to 10 percent annual growth). It is well-known that history is no guarantee for the future but combined with common sense it's the best we can hope for. It's reasonable to think that the trends in property over the past 100 years will continue in the coming years. To succeed in property investment you must be prepared for any market storm. This is true for all investment vehicles.
According to the Real Estate Institute of Australia (REIA), Australia's average house value for the period 1986-2006 was $80,800. The same house would have been worth $160,500 in 1986. That is almost double the price you paid 10 years ago. A decade later, in 2006 that average home was valued at $396,400. The average home grew by nearly 400% between 1986 and 2006. This is 8.3 per cent per year.
It's not bad. It's also in line with the longer historical perspective.
In fact, as Michael Keating points out in his blog on 24th January 2008 (Why Melbourne's property prices will continue growing), it is actually on the low side compared to historical norms. The average annual rise in the cost of housing in Australia has been 10.4 percent over the last 120 years. If you believe that had to do with Australia being a newly found colony, and you don't think that this will be viable in the long run Consider this. In the UK data on property sales go back till 1088 and analysis of the data shows that in those 920 years UK property on average has been increasing by 10.2 percent each year.
3. Purchase it with Other Peoples Money (OPM)
If all this does not convince you of the benefits of residential property investment I'll share with you one of my great secrets to generating wealth that is also applicable to investing in property. The secret is OPM. Other People's Money.
Is it a secret? This isn't a scam - it's marketing hype you find on the internet however the power of Other People's money, also referred to as gearing or leverage is crucial to gaining wealth. The amount of leverage you can use for property-related issues is huge. Banks are enthralled by residential properties as security, and can loan you up to 80% or 90%.
Archimedes was the one who said, "Give me a lever and I'll make it move." As an investor, you don't need to move the Earth. You simply want to purchase as much as you can. When you use leverage increases your capacity to profit from your property investments . More importantly, it allows you to buy a larger investment than you would normally be capable of.
Let's examine the procedure. Let's say there are five investors with each $50,000 in capital. Let's say they buy an investment that achieves 10 percent growth annually and has a rental yield (or return) of 5% per annum. Investor A can borrow 90% (Loan-to-Value Ratio of 90%) which is a lot, while investors B, C and D each borrow 80percent and 50 percent respectively. Investor E does not borrow and chooses to do an all-cash transaction.
Let's start with cashflow. This is simply rent income less interest. Investor A who gears at 90%, has negative cashflow of $15,000 for the year whilst Investor E who didn't borrow any money at all has a positive cashflow of $2,500. But that's only a small portion of the picture as each of the properties increased in value and once we include that fact, the picture is drastically altered and Investor A has an increase in net worth of $34,500, whereas Investor E who did not gear up his net worth by just $7,500. In terms of return on investment the investor A received a 69% return on his initial investment of $50,000, while investor E received a 15% return.
This is quite remarkable for just a single year. If the property is able to grow for another few cycles, we could discuss serious wealth creation. When investors have enough capital in their investment property, they can utilize that equity to fund a second purchase which after a few years growth allows the purchase of a third , and we're well on our path to prosperity! Investor E will not be going anywhere fast, so those investors who are geared like Investor E will not be moving fast.
It isn't always easy. As you may have noticed, Investor A incurred a negative cash flow in the first year and would continue to be in this state for several years, until his rental income grown sufficiently to pay the interest. The annual shortfall is paid out of his salary. Negative gearing occurs when you borrow money to grow capital but are unable to cover your annual expenses. Investors will be restricted in the amount of properties they are able to purchase that have negative gearing. They do not have enough money to pay for it. You can find more information regarding negative gearing within our strategy sections. Also, you will discover ways to cut down on the expense of paying for this out from your pockets. We also discuss cashflow positive properties.
Let's not forget about the other compelling reasons to make an investment for residential properties in Pakistan.
4. Income That Grows
We have discussed the ways that Pakistani residential property vestment is an investment that is safe. It has potential for growth over the long term, and when paired with the appropriate amount of leverage, it can yield substantial wealth. We briefly mentioned the fact that it produces rent income. The good news is that the rental income from investments in property has grown over time and has been able to outpace inflation. The last few years have seen incredible rent increases and I can tell you this because my rental properties have seen a boom. The rent isn't over.
Okay, but are rents likely to keep growing? The statistics indicate that house ownership is declining in Australia. There are a number of reasons for this like changes in the demographics, but in particular, as property prices keep rising, less people can afford to buy their dream home. The most recent Pakistan Bureau of Statistics statistics confirm that more and more people in Pakistan are renting, and many industry commentators suggest that the percentage of Pakistan who are tenants in the near future could rise to 40 percent. So demand is growing. We also know that the supply of good quality rental properties is very limited (very low vacancy rates across all of Australia) and that the government is struggling with in providing housing for the public. So all in all it is likely that rental prices will increase more quickly than inflation. That's great news for those who plan to invest in properties!
5. Tax Efficient
The bank is your ideal source of advice when it comes down to property investing. They can provide the leverage to help you create wealth faster. The second most important person to befriend is your tenant as without a tenant your investment property will be empty and your third favorite is your taxman.
The taxman? Absolutely. It's impossible to imagine that Australia offers the most attractive tax rates, but in fact it has the exact opposite.
The first is that the interest on the loan to purchase an investment property is fully deductible. In addition when the property is occupied for more than a year, capital gains tax is not due. Add in the different depreciation allowances and you'll be the owner of a tax-efficient investment. If you do your homework, you'll find that the bank will gladly provide you with 80% to 90% of the funds needed to buy your investment property. Once you have it the tenant and you are both responsible for your interest and rent expenses. Guess who will get to keep the capital gains, you! Discuss OPM.
6. Millions of Millionaires
If this doesn't get you going take a look at this: the majority of the world's most wealthy people earned their wealth by investing in property. People who did not make a fortune through property typically put their newfound wealth into property.
If the majority of successful people have used investment properties to boost their wealth, why not apply the same strategy? It's not a bad idea to look at the ways successful people make money and applying the same principles to your own life.
McDonald's earns more revenue from its real estate, rather than selling fries or burgers because it owns the majority of the land and buildings in which its franchises are located.
7. It's doable too.
I'll tell you, before you start to claim that it's ok for the wealthy, how do I going to get involved in the property market? It's not a huge amount of funds to invest in property. Many banks will lend up to 90% of 95%, 95 percent, 95% or even 100 percent of the home's value. As long as you've got an employment that is stable and a little start-up capital (spare equity in your home) you are able to purchase investment properties.
It has been proven over and over again that the careful and smart use of real estate could enable ordinary people, like me and you, to become property millionaires in about 10 years. If you are truly hoping to become one of the wealthy people in the near future, then you should probably take a serious look at the use of real estate to your advantage.
8. Do you work too hard?
There are a variety of ways you can earn money. Some say visit property investment is not that simple and requires a lot more time and effort. It is a long process to gain an understanding of the market for property and the best way to approach investing in property. It can take weeks or even months to study areas and choose the best investment property. This is especially true when you need to find financing and an attorney to manage all legal documentation. The financial and legal process is a process that can take anywhere from 30 to 60 days. After you've acquired the property, the work does not stop there. There is a need to keep it in good condition and pay your taxes!
There was no guarantee that it would be simple. You don't need to do it by yourself.
It will take time and you will have to work at it and get yourself educated. However, should you be determined to build wealth and retirement early, the property market is an ideal method to reach that. Once you've begun and have some experience under your belt it gets easier, and the process of building a portfolio of investment properties can be very rewarding and enjoyable too.