The probability factor is the idea that, historically, property doubles every seven to ten years, and that it will continue to do so. In adopting the probability factor, this could be the difference between being a self-funded retiree, or retiring, living pension to pension.
Non-believers often ask me if I really think that the property market will continue to grow and return capital growth. The statement that it just can’t keep going up often follows this question. These people are often insistent that it is about to stop. My usual response is to ask if they really believe that a litre of milk will cost the same in ten years’ time.
The fact that we do not have absolute certainty at our disposal, to assure us of capital gains in the short-term, prevents some people from investing in the property market because they doubt the longer-term growth.
Not recognising the proven performance of property in the longer-term, particularly when we have such reliable statistics at hand, is fruitless. Official data supports absolute growth in both the share market and the property market, and all of this data is readily available on the Internet and in almost every property magazine on the shelf. No research, no belief, no fruit!
Due to my unfailing belief in the property market, and the probability factor, I have benefited enormously from property. If you need to rely on something, rely on the fact that historically, property has doubled every seven to ten years and has done since 1920 when the government started keeping accurate records in Australia.
If you want to go further into history, to seek reassurance of the probability factor, look no further than the Doomsday Book commissioned in 1085. A hand written fully bound book in two volumes, the Doomsday Book recorded 13,418 settlements in England south of the river Thames. Commissioned by William the Conqueror, some 19 years after coming into power, he instructed Legate’s to visit and record every household for occupants, assets and status, so that he could levy and collect taxes.
Today, some 927 years old, the Doomsday Book proves that property in England has continued to increase in value at a rate of 10% per annum. As a point of interest, the Doomsday Book resides today in a museum in Kew in England.
To further add to the probability factor, I have often renovated my family homes and benefited from both the market increase and the improvement in capital value of the house.
My ongoing belief that I had a safety net for any debt that I may have taken on with a mortgage, layin the comfort of the probability factor. This gave me the confidence to take risks over the years and, to my benefit, it paid off with healthy capital gains. My fall-back position was cemented over the decades and lay in the fact that property had doubled every seven to ten years. So, if history taught me this, then surely my safety net would give me a soft landing of at least doubling my property value in that time, as it so often did.
As an investor, when the market softened, dipped, or fell, I remained loyal to my plan and kept the faith on the basis that the probability factor was on my side, and I continued to hold the asset. I can honestly say that every residential property I have held has returned capital growth.
An investment experience is like travelling on an aircraft. As an investor we jump on board for the journey ahead. We have a wonderful flight with a smooth and comfortable climb, a nice levelling out above the clouds and then a steady and safe landing to the final destination of capital growth.
But some other investment journeys can be a little more awkward with an uneasy take-off, a slow assent and a levelling out with bouts of turbulent dips and climbs. Worse, we can be diverted off course, with a Global Financial Crisis, to another airport and not arrive immediately at capital growth as we had anticipated. But, like all travellers, when we wait patiently we ultimately end up at our final destination – capital growth!
I have experienced both of the above scenarios. So why have I always purchased regardless of the market? Like some, why don’t I wait endless months or years for the market to drop in price so I can scoop up a bargain? It is clear to me if I buy and hold, for at least seven to ten years, my property should double regardless! That is the probability factor.
Just remember: Equity + Time = Wealth through capital growth!
With no real certainty or crystal ball, we are limited to our own comfort zone, knowledge and ability to take risks. This is why I believe the probability factor is so good for so many investors. It is safe.
For the Mum and Dad investors, and I place myself in this category, we are happy with the degree of probability that we find in the property market. We enjoy the certainty of bricks and mortar. We have a sense of relief driving past our properties on a day when the stock market has proven unreliable. The lights are on, people are home and the rent is in the bank at the end of the month. I have never believed in get rich quick programs. This is a safe and reliable way to invest.
Lynne Wilton, The Formula – A mentor’s guide to confident property investing, 2012