Ah yes, property. It's the cornerstone of wealth for many Australians. But as an overall percentage, very few people manage to create significant wealth out of "passively" investing in property.
Why People Tend Not to Get Wealthy From Property
Whilst there are many reasons for this, the main ones in my observation are:
- Poor asset selection: Not buying an investment grade property in the first place.
- Cashflow: Not being able to hold on to the property for 15-20 years due to poor cashflow planning.
- Over-concentration: Having too much wealth tied to property and little diversification, increasing investment risk in a down or falling market.
- Buying at the peak of the market due to "fear of missing out".
- Not insuring the continuity of income required to hold property.
Avoid those 4 mistakes and you can significantly improve your chances of creating wealth through property.
Manage Your Risks
Property carries other risks too such as:
- high acquisition costs
- high holding and selling costs
- lack of liquidity
- inability to sell in a very short time
- high selling costs
- tenancy risks
These need to be managed effectively for you to create wealth out of property.
The Bottom Line
Being able to hold on to a property for a very long time is the single most important contributing factor when it comes to creating wealth through residential property. Therefore, buying property can work really well if the above risks are considered, addressed and planned for so you can hold on to the property for a very long time.
Remember, it's easy to buy property. But it's difficult to hold on to it and really profit from it.