How you can invest in property on an average salary?
Many people believe that property investing is beyond their reach: that they would need to get a better job, a much higher salary, or win the lottery to become a property investor.
This couldn’t be further from the truth. Many ordinary, everyday Australians are benefiting from property investment and using it as a vehicle to increase their wealth and income.
How many property investors are there?
Property investing is not all about real estate tycoons who do it professionally. Research from the Australian Bureau of Statistics (ABS) shows that so-called “small-scale investors” own 83% of all investment properties.
ING Direct’s 2016 Financial Wellbeing Index reveals that around 20% of all Australians – or more than five million of us – already own an investment property. This is driven in part by strong population growth which continues to fuel the demand from renters.
In fact, property investors provide the majority of rental properties across the country, and it’s growing in popularity as an investment class. Investors own 27% of Australian residential dwellings by number and 24% by value, according to Corelogic. The number of investor-owned dwellings in Australia also increased 4.6% between 2014 and 2016.
ABS data also shows investors account for nearly 47% of the value of new mortgages, and thanks to negative gearing they claimed $3.719 billion in net rental losses during 2013/14, offsetting their taxable income and reducing the tax they have to pay.
What does the average property investor look like?
According to statistics from the ABS, the typical property investor is likely to be a forty-something, married, self-employed male who earns the average wage:
- The average property investor is 42 years old.
- 72% of investors are married.
- 27% of property investors are classified as “self-employed”, but a large proportion is also small business owners, professionals, managers or skilled tradespeople.
- Two-thirds of property investors are male compared to just one third who are women.
- The average property investor has a net annual income of $79,404 (excluding the top 100 investors), which puts them in line with the average Australian wage of around $80,000.
Why are they investing in property?
According to ING Direct’s 2016 Financial Wellbeing Index, 22% of Gen Y own at least one investment property. For Gen X (35-49 year olds) it’s 20%, and for Baby Boomers (50-64 year olds) it is 19%. ABS Statistics confirm this, showing that the probability of becoming a residential investor declines after the age of 65.
Property typically has long-term growth potential, which goes some way to explaining Gen Y’s attraction to it – they’re in it for the long haul.
But people have all sorts of reasons for investing in property, usually tied to generating wealth and income. An investment property could be part of a retirement plan, a holiday home, an inheritance, a way of putting cash into something solid for the kids, or a strategy of investing for long-term capital growth, rental income, and the potential tax benefits in the form of negative gearing.
According to Corelogic, investors classed as middle income, with a taxable income between $60,000 and $80,000 are the most likely to negatively gear their properties and claim the benefits of a net rental loss.
What are property investors buying?
Most small-scale property investors are drawn to the familiarity of residential property.
But they don’t necessarily buy close to home. Around half of the residential investors invest in a property in a different postcode to where they reside, and 11% of residential investors buy in a different state to where they live.
Most investors buy units, or what counts as “attached housing”, where they account for 48% of owners. Fewer buy detached houses, with investors only accounting for 17% of owners in this category.
The opportunity cost
The benefits of owning property are usually long-term and the key ingredient is often to spend ‘time in the market’ rather than trying to ‘time the market’. After all, any dips in value usually correct themselves given time.
For this, reason believing myths about property investment, or thinking it’s not possible for you, can actually prevent you from entering the property market. And delaying an investment until later on in life may end up costing you more in the long run.
Many more people would like to invest in property than currently do. A Galaxy research survey conducted by State Custodians found that 74% of Gen X said they would like an investment property, but many were concerned about securing a loan, or knowing where to invest.
Naturally, investing in property does require some upfront capital in the form of a deposit, and like any investment, it does come with some level of financial risk. But as the numbers show, it’s a feasible investment for many average Australians.
Want to get started?
To find out how you can start investing in property, consult with a financial adviser or mortgage broker to establish upfront how much you can afford to invest. It pays to do thorough research first and to know exactly what you afford to repay, even if interest rates start to rise. As with any investment, you should also be sure to examine the financials of the investment and buy with your “head over heart”.
If you’re interested in accessing the very best investment opportunities in the property market, Vystal can help.