Hi,
I am trying to explain to my parents how capital growth and using it as equity and that using the banks money can be very effective. They just dont understand this theory, they are convinced the only way to get into property investment is to buy a place outright. Also they dont beleive me when i say that Houses in capital cities generally double in value every 10 years.Can anyone tell me where i can get some information regarding this topic? Also if i could show them a graph of how propertys in capital cityies have grown in value last 50 years would also be very handy.
Stephen
Price in Syd (and other cities) tend to double in 7yrs (from memory, but it sounds about right). Rural areas tend to double every 10-13yrs (roughly). Check out the http://www.abs.gov.au
As for explaining equity to them:
Say that they own a house worth $300K. Lets say they have a mortgage of $150K on the property. Now banks will lend them 80% of the property value (what the property is worth today) quite easily (as long as they have an income (job/self employed) and can meet the repyments).
So 80% of $300K = $240K – the $150K they owe = $90K. That means they can take the $90K out. And they can spend it on anything (such as another property, or a boat, family holiday, etc).
Of course it is better to spend it on assets – property, shares, etc, (where as most people tend to spend it on liabilities – such as cars, boats, etc)
Hellman
It may be bad manners to plug someone in someone else’s forum, but this looks like a job for either the Jan Somers books (although remember she’s a negative gearing fan) or Margaret Lomas who puts things very simply.
Some of Jan Somers’ books point out that the figure of 7 to 10 per cent not only holds over the last 40 odd years but can be traced back to property values at the time of the Domesday Book (i.e. 1070 AD)! I haven’t checked this claim, but I recall the phrase.
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