There is good debt … and there is bad debt. Not once in all my years of mathematics education was I ever taught the difference. In my upbringing, all debt was seen to be “bad”.
If you had $100,000 to invest in 2007 what would you have done? The Sydney property market had peaked. The stock market was also at its peak.
If you had bought a $500,000 property in Sydney with a 20% deposit ($100,000) and borrowed the rest ($400,000), that property would now be worth $1,000,000. Sell it, pay off the debt and you have just turned $100,000 into $600,000 in 10 years.
If you had bought two $500,000 properties in Sydney with a 10% deposit ($100,000) and borrowed the rest ($900,000), those properties would now be worth $2,000,000. Sell, pay off the debt and you have just turned $100,000 into $1,100,000 in 10 years.
This is the Power of Leverage (Read Here).
If you had done the same thing with Brisbane property with a 20% deposit (or two with a 10% deposit) your $100,000 would now be worth $200,000 and $300,000 respectively.
(Brisbane and Sydney are at different points in their property cycles – but this still shows why owning Sydney property as an investor – even if you don’t live there – is a powerful strategy).
What about other options? If you had bought $100,000 worth of Australian shares – they would now be worth $90,000 plus any dividends you might have received (explains a lot about why your super hasn’t gone anywhere in the last decade).
If you had bought a $100,000 car, that might now be worth $10,000.
It is true that you can also borrow to enter the stock market – but this is only an option for sophisticated investors as there are many hidden surprises for the unwary.
You can also borrow to buy a car – this is an outstanding example of bad debt.
This isn’t meant to be a history lesson. If you have $100,000 to invest in 2017 – even though the Sydney property market may have just peaked again – what would you do?
Investing in property, using debt wisely – is still a powerful way to provide for your future.
It’s not about “timing the market” … it’s about “time in the market”.
As always you can call or email me anytime… It’s what I’m here for…
Alan Heath… Mortgage Broker Brisbane CBD
Also if you haven’t downloaded my app Ask Alan yet, check it out in html here: http://app.askalanheath.com.au/
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