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Why Some Investors Struggle

According to the 2014 Global Wealth Report of Credit Suisse, property makes Australians the world’s richest people in the world. It’s a nice statistic for sure, and it also reinforces the notion that investing in property is the smart thing to do.

Despite being labeled the richest people in the world, many Aussies don’t feel wealthy. In fact, there are property investors in the country who feel the exact opposite. In their experience, the more houses they invest in, the more they have to work extra hours just to make ends meet.

Asset Rich, Cash Poor: How Does Home Ownership Contribute To  Wealth Creation?

One of the reasons why people struggle despite having a property portfolio is that they have no idea how property ownership contributes to the creation of wealth. Most people think that the value of the house is wealth in itself. While this is technically true, this ‘wealth’ isn’t something you can actually utilise in a practical sense.

Think about it: Assuming you own a $500,000 house and you lost your income today, will you be able to get by with that $500,000 property? Probably not if you factor in monthly mortgage payments and maintenance costs. In that scenario, your house feels more like it’s eating away at your wealth than something that generates wealth.

Many people are in this dilemma. They are asset rich thanks to their house, but they are cash poor with few options to get by if something goes wrong such as unemployment or an unexpected medical expense.

Moreover, the common practice of negative gearing makes it all the more difficult to sustain a property portfolio. Rather than create cashflow, investors end up losing money each month to qualify for tax breaks. With the cost of living increasing, how can people afford to lose money on their properties each month?

Changing Our Wealth Creation Framework

The bottom line is this: left alone, your property won’t generate you wealth. In fact, it becomes a source of a mountain of expenses if you don’t know what to do with it. This is the reason why it is very important to have concrete financial planning. You have to have a clear idea on what to do with your property so that it puts money into your pocket – not take money from your pocket. In other words, you must have a detailed plan on how ownership of your investment property will contribute to the creation of wealth.

The only way to do this is to gear your investment positively. Investment Properties are easier to maintain if it brings in profit. Rather than look for ways to pay for your property, the property ends up taking care of itself and, if the cash flow is big enough, bring extra into your bank account. Isn’t this the reason why people want to invest in the first place?

If you want to learn more about how home ownership can contribute to wealth creation, register for our ‘Prepare Your Wealthy Future’ seminar at www.pwf.com.au/prepare-your-wealthy-future-seminars.