Mark Hay
Real Life Examples

This Weeks Episode of Home in WA

Contact:
Mark Hay

Email:
markh@markhay.com.au

Website:
http://www.markhay.com.au/

Phone:
(08) 9225 7000

Fax:
(08) 9225 7777

Mobile:
0418 953 742

Address:
28/118 Royal Street
East Perth WA 6004

As set out in the story, here are several points highlighted in this real life example. The first is indeed capital growth, growing from a value in 1986 of $20,000 to its current day value of $270,000, which soundly shows the tried and tested, age old method of capital growth, producing a brilliant nest egg. Another point highlighted is the rent in 1986 was $33 per week, it’s now gone to over nearly 10 times that in a matter of 27 years, to a current value of $310 per week. Also highlighted by this example is equity, the equity was initially a $5,000 deposit or 25% of the value of the property. By following the time old method of interest only lending (i.e. paying nothing off the principle while working), the owner equity in the property has ballooned from 25% to in excess of 97%, yet not one dollar has been paid of the initial loan, which still remains a tax deductible component at $15,000 of the principle.

However, by and large the most exciting display of real wealth creation process is whereby re-borrowing 5 times in the 27 years against the increased equity, a further 7 properties have been able to be purchased. Obviously, this will be constrained by everyone’s personal and specific earning capacity, but it shows clearly firsthand how a high growth asset can be used to leverage many times over in an aggressive wealth accumulation module such as this. It is further interesting to note, that no value has been assigned to the other 7 properties, which obviously would have increased substantially in their own right and then inturn, the increased equity could be borrowed against these properties to be leveraged into further property to be borrowed against yet again.

This real life example delivers firsthand the true benefits of property investment i.e. gearing, paying interest only, re-mortgaging and utilising increased equity and finally letting time do its work for you. However please note that this is a very aggressive model, not advised to most investors.