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In Australia, property has historically doubled every 7 to 10 years.
We call this the “Property Cycle.”
Here’s an example of the median house prices of Sydney:
1975 – $34,300
1985 – $73,000
1995 – $210,000
2005 – $545,000
2015 – $923,000
If you had the opportunity to invest 10 years ago and didn’t, you might feel a little regret. But rather than looking at history, I invite you to look to the future, because it will happen again (and it will continue to happen until our population stops growing, inflation ends and people don’t want to live in houses anymore).
What’s important to know about the numbers above is that property does NOT grow steadily year-by-year until it finally doubles like this:
Instead, property growth occurs in waves, as shown below.
These waves occur at different times in different areas. If you look at the statistics you’ll see that on the East Coast of Australia a property wave will occur in Melbourne, then the wave moves to Sydney and then to Brisbane and then returns again to Melbourne.
When you take a closer look at the wave movement of each major city, you can see it moves from the CBD outwards, as if a pebble is dropped in the city centre and the waves ripple outwards, creating a surge of growth.
And then there is a special type of wave which occurs in a brand new area as if a pebble was dropped in the “middle of nowhere” and suddenly there is a growth—a property wave. (Hint: that pebble often has a name like Westfields, Ikea, Bunnings, or an Airport!)
You might be thinking, “so what is the point of understanding where the next wave will be?” After all, as a long-term investment, a property will build wealth over time, regardless of when you buy it—if you hold on to it. Fair question!
Well, what is the purpose of this game? It’s like the board game Monopoly—you want to acquire as many houses as possible. To build a large asset base. The faster you do that, the bigger your wealth will be when you retire.
The ONLY reason to buy before the next wave is that it allows you to get the NEXT property faster.
That’s what matters.
Check out this simple plan:
You acquire your first investment property in wave one.
In wave two, you acquire property #2 using equity from property #1.
In wave three you acquire property #3 using equity from #1 and #2.
In about ten years from now, you have ridden 3 waves and built a property portfolio worth around $2M with about $1.5M debt.
If that is all you did, then 10 years after that your portfolio is worth $4M and if you didn’t pay down any debt, you would have $2.5M equity and the rent could fund a modest lifestyle. You could probably do much better than these numbers.
The questions that you should be asking yourself are:
How many waves can you catch before you retire?
How many waves do you want to miss out on before you start?
The sooner you start, the easier it gets. The first one is the hardest.
