The thing that makes property so powerful is the incredible leverage that you’re able to achieve.
When you compare residential property to things like shares, or bonds or any other investment class, most of them would not allow you to get anywhere near the level of leverage that a typical homebuyer can get.
In many instances, it’s possible to buy a property with less than a 10% deposit, not including other fees and costs, and that is a pretty powerful thing. Because when your property increases by 7% per year, your ROI is not 7%. It’s exponentially higher depending on how much money you need to put down.
A great example of this is from a client of ours who was able to recently purchase their first home.
Being a first home buyer, they had the added benefit of access to some of the government grants and incentives that were on offer and that really meant their initial upfront investment was very low.
They were able to purchase a $700,000 property, with just a $35,000 deposit. That’s just 5% of the purchase price and is incredible when you think about it.
To do this they were able to access the government’s First Home Guarantee, which meant they only needed to put down 5% and didn’t have to pay Lender’s Mortgage Insurance (LMI).
Being a first home buyer, they also didn’t need to pay stamp duty which saved them another considerable chunk of cash upfront.
They purchased the property in 2021 and in the following three years, the value of the property rose to nearly $1 million when it was revalued. This meant they had seen their equity increase by $300,000.
While that increase on its own is life-changing for many people, the ROI that was achieved was staggering.
This client put down just $35,000 so their ROI was in fact 800%.
Think about any other asset class and what are the chances of achieving an 800% return, without taking on huge risks.
That’s really why property is such a powerful way to build wealth. You are able to use leverage to your advantage and create these situations where you have so much upside compared to what you have to put down.
Of course, there were other costs involved and things like interest that needed to be paid over the course of owning the property. But from a pure ROI perspective, the result is outstanding.
Now this client also has the opportunity to boost that ROI even more, because they can now theoretically tap into that equity and use it to go out and purchase another property. That means their ROI will move even higher because they can get another property (or multiple) and not have to use any more of their own money to do so.
