It’s no secret that the vast majority of Australians who have a decent net worth, have built a lot of it through residential real estate.
In fact, a lot of people who I now work with as clients who are buying the $4 million-plus homes have got there through consistently buying and upgrading over a long period of time. The blueprint for generating wealth is relatively simple, but there are some good lessons we can learn as property investors.
What I see a lot of are people that initially entered the market and purchased their first home for around $400,000. After time, these people then saw the value of that property grow to $800,000. They then took this opportunity to upgrade after 7-10 years and then purchase another property for $1.5 million. At the same time, their incomes have grown, their businesses have improved and they are then able to afford a higher-priced property.
After another period of sitting on a quality asset, the home’s value increased once again and is now valued at $3 million. These homeowners then took the chance to upgrade and that’s how they now find themselves in the higher end of the market and purchasing these $4 or $5 million properties that on the surface look very unaffordable for a first home buyer.
While it’s no secret that the strong property market that we’ve seen in Australia over many decades has done a fair bit of the heavy lifting there’s also a very important thing we need to examine.
In this example, this is just a home buyer, looking to purchase a home to live in. This isn’t an investor necessarily trying to make money on the property. When they were looking for a home to purchase, they were simply looking at all the factors that would make that property appealing to them.
They wanted a great location, that was close to work and the CBD so they didn’t have to spend large portions of their weeks commuting. They also wanted access to the very best schools for their children.
Given they were living in the home, it also needed to be close to all the great amenities and lifestyle options that they wanted such as access to beaches, the Harbour and restaurants and cafes. And of course, the homes needed to be a good fit for their families to live in with enough space.
When you look at buying a property through this lens, you can quickly identify the areas that are likely going to attract home buyer interest and why it’s those same areas that will likely continue to see great growth going forward.
In the current market, there are increasing levels of uncertainty about what’s going to happen. Are interest rates going to keep rising, or are prices going to crash? The reality is that you shouldn’t be making long-term buying decisions based on short-term metrics.
If you’re looking to buy a home to live in for a long period of time, this type of market allows you to enter and pay a far lower premium than you would have 12 months ago.
If you’re looking to invest, buy a property as if you’re an owner-occupier and find the very best blue-chip asset you can. These types of properties will be the ones that are able to defy the market weakness and will be in hot demand during the next upcycle.
Along with the best buyers agent in Sydney, that’s how you go about building wealth over a long period of time and can eventually find yourself living in a $5 million home.