Hey guys,
I'm a 28 y/o Aussie business owner starting out my own journey towards wealth and FI. Property is a big topic here in Australia due to the recent boom in prices experienced in the last 5-10 years that have many baby boomers sitting on a nice pile of equity. As with most journeys to wealth, starting in the right direction with the right strategy from day 1 its pretty darn important.
So my question to the more experienced in long term wealth and investment strategies, why would you choose to invest your wealth in property over investing in stocks,bonds,REIT's and other forms of more liquid assets and renting?
I ran 3 different simulations over a 15 year period and then a 30 year period.
Option 1:
Purchase a $490,000 property with a 20% deposit, live in it and pay it off aggressively in 15 years. Property increases annually at an average of 3% and the loan is charged at 3.89%. You pay no rent but incur the cost of owning a property.
Option 2:
Continue to rent (Australian rental prices in my state are historically currently quite low, you get a great house for a reasonable price), take your 20% house deposit, invest it then continue investing the payments you typically would be making in option 1 into other asset classes averaging a 7% return.
Option 3:
Continue to rent and purchase an investment property! Pay it off in the same way as in option 1 but you now receive income from rent (assume a 100% occupancy rate) and some tax breaks for the initial losses inured on your new income producing asset.
Now at the 15 year mark on each simulation, option 2 came out with the greatest net worth. So you're probably thinking yeah yeah go to 30 years as now you're not paying a mortgage. I did just that, stopping all mortgage payments, and stopping all additional investment additions for option 2 (as at this stage you could be investing in all 3 scenarios). Basically sitting on the net worth accumulated at year 15 for an additional 15 years.
Some assumptions were needed in each set of calculations, but I tried to keep it as realistic and as fair as possible as to not bias one or the other
Net worth at year 15
Option 1
$420,203.97
Option 2
$988,100.00
Option 3
$533,303.97
Net worth at year 30
Option 1
$896,536.99
Option 2
$3,182,100.00
Option 3
$1,183,722.82
What am I missing here? As a young adult I just cannot see the wealth benefit of property unless the property does some crazy 10-20% jump in prices for a few years. I'm not experienced with property so predicting this would be blind guesswork for myself.
I'd love to hear everyone's opinions on this as its something a lot of friends my age are also dumb founded on.
Thanks a lot!