A desire to buy a home for he and his family to enjoy living in was beginning to feel impossible because he could not save a big enough deposit quick enough. Until he discovered a smarter alternative.
When Brisbane-based computer programmer, Paul, reached out to the Propertyology team in 2016, he had been diligently saving his pennies for quite some time.
4-years later, he was living in his own home, plus he owned a high-performing investment property (in a completely different state) that it is already paying for itself.
Paul’s success is testament to determination, lateral thinking, goal setting and taking advantage of specialist advice.
“I remember finding it very difficult to imagine ever having a big enough deposit to purchase a quality house within a Brisbane suburb that I would be happy living in. Even though the Brisbane property market was only growing mildly in 2016, my unfortunate reality was that the value of a standard house was likely to keep increasing quicker than my deposit would,” Paul recalled.
There will be thousands upon thousands of Australians who can relate to Paul’s situation. Some people in this situation begin a game of blame and complain. But a bad attitude and brattish behaviour won’t change the outcome.
As with all important life challenges, Paul’s solution was found through lateral thinking.
He knew that the money he had already saved was enough to buy a property worth $300,000. But there were not any properties in his hometown that he wanted to live in for $300,000.
“I did not want to throw my good money at a ‘bad’ asset, like an inner-city apartment,” Paul said.
The power of leverage is something that Paul was already familiar with. He realised that if a small asset in cash were used towards purchasing a property asset worth a significantly bigger value, even if the property value grew at a relatively small rate it still equates to a bigger net asset value than what he could otherwise save.
Time for lateral-thinking and specialist advice.
While he had not previously used their services, Paul was familiar with Propertyology. He understood that their firm specialises in analysing property markets Australia-wide and that their buyer’s agency service helped everyday Aussies to purchase property without the interference of everyone’s personal biases.
In July 2016, Propertyology found and negotiated the purchase of this solid, 4-bedroom house in an interstate location for just $280,000.
With a 10 percent cash deposit and a 90 percent bank loan, annual rental incomes covered 100 percent of loan interest and other costs associated with Paul owning this investment property.
With the knowledge that his savings was now put to good use, Paul continued to go about his daily life, renting in Brisbane while still saving a little bit of money each year.
Fast-forward 4.5 years, Paul’s investment property had increased in value to $420,000. In other words, his starting equity position of $28,000 (10 percent) had increased to $168,000. Paul certainly could not have saved anywhere near that much.
“Late last year, I had it revalued and used the equity to help finance my own house here in Brisbane,” Paul said.
The 50 percent capital growth that Paul is enjoying from his investment property ranks it as one of the best-performed property markets in Australia during that 4.5-year period. For comparison, the median value of a Brisbane apartment declined by 6 percent, while the median house price in Brisbane, Sydney and Melbourne increased by 14 percent, 13 percent and 30 percent, respectively.
The solid regional city that Propertyology helped Paul to invest in has a very diverse economy, a good lifestyle and there is significant infrastructure investment currently underway.
The significant shortfall in housing supply in this location means that the market rent for Paul’s investment property has increased from $310 per week to $400 per week (or $4,500 per annum). Paul has retained the same tenant for the entire period.
Homeownership and financial independence are two different things. Most people aspire for both. It takes a considerable number of years and a series of good quality decisions to achieve them.
While many others remain on the sidelines complaining and making no progress towards either goal, Paul’s wonderful success is proof that rent-vesting is a very clever strategy for (both) wealth creation and homeownership.
Propertyology are national buyer’s agents and Australia’s premier property market analyst. Every capital city and every non-capital city, Propertyology analyse fundamentals in every market, every day. We use this valuable research to help everyday Aussies to invest in strategically-chosen locations (literally) all over Australia. Like to know more? Contact us here.