Does Australian Residential Property really double in value every seven years?

I am sure many of you have heard ‘good property doubles in value every seven years’, this seems to be in the real estate agent’s training manual, but it has also penetrated the minds of many investors.

An easy way to determine how long it will take an investment to double in value is called the Rule of 72. You calculate this by dividing 72 by the annual growth rate. In order to achieve double in seven years, which is divide 72 by seven, you will get just over 10%.

10% per year may seem possible, but property markets move in cycles, there seems to be three or four years when the market is flat and in some cases the property values fall; then there are three or four years of low capital growth followed by a few years of strong price growth during the boom stage of the cycle.

Current RBA rate at record low at 1% may boost the property price a little, but we have had low wages growth, low inflation and the banks have turned down the lending tap, making finance harder to get.

So 10% annual growth or property value double in value for the next seven years is that possible? Usually not.

And don’t forget to take stamp duty, renovations, selling costs and holding costs into account, if you only compare purchase and sale prices, you cannot see the true value. For example, if you have recently bought a house in Sydney for $1,000,000, below are the costs may associate with it:

Purchase price: $1,000,000

Stamp duty: $40,000

Legal and admin: $3,000

Renovations: $50,000

Holding costs for 7 years: $145,600 (assume $400 per week negative cash flow)

Total cost = $1,283,600

Therefore, you require to sell the property over $2.4m to achieve double in value in seven years.

However, what if the tenant damage the property? Or it’s been vacant for a certain of time, do you have enough cash flow to hold onto it? What if property price being stagnated? You would have had a lost.

Yes, property value will increase in long term, but if your property is draining your cash flow, why not finding a way to provide a better cash flow and create a better lifestyle? We are here to help, contact us for a FREE CONSULTATION now.

#australiapropertymarket #sevenyearsmyth #propertyinvestment #positivecashflow #propertyconsultating