Property Investment: Property Rewards Those Who Can See It Through
Every property that we have purchased has provided a huge learning opportunity.
We purchased our first investment property in 1999. A brand new two-bedroom townhouse in a gated community in the outer suburbs of an Australian capital city.
Initially we were the excited owners of a brand new property. A couple of years later, our excitement had disappeared and we started to doubt whether the purchase was the right decision.
It was 2002 and property prices had moved very little since we had purchased the property. The property was negatively geared, which meant the rent we received was not enough to cover the loan repayments and property expenses. It was costing us a couple of thousand of dollars each year to hold the property.
It property values had increased, we would have felt more comfortable. For example, it's acceptable to pay $2,000 in property expenses per year if your property goes up in value by $20,000 per year.
We started to doubt our purchase and asked ourselves questions such as:
- Did we buy in the right area?
- Should we have bought a house rather than a townhouse?
- Should we sell the property?
These are the frustrating emotions a property investor goes through depending on the market conditions. The property market is not always experiencing a boom. We believed we had purchased a quality investment property and did not sell it.
It's generally said that property purchased in a good location, doubles in value every 7 to 10 years however this depends on many variables in the economy. It is now 2010 and the property has more than doubled in value.
Here are the figures on the property:
Purchase price in 1999: $142,000
Rent in 1999: $170 per week
Current value in 2010: $300,000
Current rent in 2010: $310 per week
Here are the positives of this investment: we have achieved over $150,000 in capital growth, our loan has gone down and our rent has gone up.
The challenge is working through your thoughts to see it through. It's said that the average annual growth rate for property is about 10% depending on location and type of property. However, that doesn't mean that properties go up in value by 10% every year. There are periods of slow down that could last several years, and periods of boom where values can grow significantly in one year. This is all the natural pattern of the property cycle.
I have talked to investors who bought property in the late 90's. Many of them sold their property when it was costing them to hold it and they didn't see any capital growth. One of the booms in Australia happened in the early 2000's. Those people who held their properties saw significant capital growth.
Do the research to ensure you buy the right property in a good location, and then let the property cycle work for. Property rewards those who can see it through.
by: Suzie Crawford
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