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Why property selection is critical to creating wealth

Wednesday, 2nd Sep 2015

property selectionNot all properties in one single city or suburb record the same growth rates and the cost of buying the wrong property could be higher than you think.

While anyone with a deposit or enough equity in their home can become a property investor, buying a high-performing investment property is a totally different ball game.

It requires a comprehensive understanding of the property market, a firm knowledge of the underlying economic drivers that will lead to higher capital growth and literally hundreds of hours of research and monitoring the market to find the right property.

Quite simply, finding the right property is hard work, and then you have to make sure your finances are structured effectively as well as negotiating the purchase to ensure you secure the best price and contract terms.

However, when it comes to property investment, the hard work is generally worth the reward.

For example, if an investor purchases an investment property for $500,000, the capital gains will be substantially different depending on the growth rate.

At a compounded growth rate at a moderate 5%, the capital gains on the property will be about $140,000 after 5 years and about $320,000 after 10 years.

While these returns might seem sufficient, the capital gains are significantly more if the compounded growth rate is only slightly higher at 8%.

At this rate, the capital gains on the property will be about $235,000 after 5 years and about $580,000 after 10 years.

Given this, it’s easy to see why property selection is critical to optimising your wealth.

The performance of your first investment property will also have a large impact on how soon you can purchase subsequent investment properties.

Indeed, the sooner you can purchase another high-performing investment property the quicker you can build your wealth, so it pays to select the right property the first time.