Crypto crash! Why property is the Best Currency - May 2022
May 20, 2022 / Written by Rich Harvey
There are all sorts of thrill rides in the world that can fuel your inner adrenaline junkie. From topsy-turvy machinery at the Royal Easter show to bungee jumping from a gorge-spanning bridge in New Zealand – if you’re looking for a buzz, the options are endless.
But there’s one place where I believe the thrill of participation is not worth the risk of downfall – and that’s when it comes to your financial future.
If you want an example, look no further than the heart pumping-rise and heartbreaking fall delivered by crypto currency.
As lousy as it’s been for its victims, crypto can teach us all a lesson in the importance of getting rich slowly.
The mighty crash
For those who may not know, the swift ascendance and decline of crypto has been on full display in recent months.
Price moves for major cryptos have been head spinning.
Bitcoin peaked at $67,567 USD in August 2021 but it’s now worth $30,210. That’s a 55 per cent drop.
Ethereum has fallen by 58 per cent, from $4812 in August 2021 to $2027 today.
But the most dramatic illustration of the damage this sector delivered is Terra Luna.
On 5th April this year, Terra Luna coins were priced at $116 each… today they’re worth $0.0001408. You read that correctly – a tradable crypto currency fell in value to be effectively worthless in a matter of days.
Let me put some real-life perspective on this. I recently attended a networking meeting and was discussing crypto with an associate in the finance space.
He told me of a client who’d invested $100,000 early on in Terra Luna and saw his holding skyrocket to be worth $12 million. At this point, the client was advised to sell down their Luna, but refused because it would have created a $4 million tax bill. Put another way, they ignored a net profit of $8 million because they didn’t want to pay tax.
They held on and now that same investor, fueled by greed and fast money, has seen their holdings plummet to worthless, gone, nada. They’ve lost the lot.
The only silver lining is that they were planning at one point to leverage against the $12 million valuation and invest 80 per cent of the borrowed funds in the share market.
Fortunately, they didn’t, otherwise they wouldn’t be just $100,000 out of pocket. They’d have lost absolutely everything they own.
The problem as I see it is that we’re being sold a lie by fast society. We consume social media at a rate of knots. We receive information that’s unvetted and delivered by ‘experts’ whose sole claim to fame is that they tout the fast bucks they’ve made in unstable investments – and its usually due to luck, not expertise.
Others get swept up in the fervour of their quick wealth. They’ve seen the dollar signs and are blinded by how fast and far they can strike it rich.
But reality has delivered a brutal lesson – it’s that fast wealth and rapid greed is fleeting, and in its wake is a whole world of hurt.
The currency of real estate
The real teaching from this episode is that getting rich slowly is the best way to long term security, which is why I love real estate as an asset.
For starters, the value of property and the way it rises in value is founded in its purpose. Sure, market confidence plays its part, but that’s not 100 per cent of what drives any capital gains.
Property is a tangible investment vehicle. It provides shelter and can be utilised by you as a home or monetised as a rental.
Property has scarcity. They aren’t making more land so the way we utilise the real estate we have available to us is important.
Property is consistent and reliable in its price growth. Small scale fluctuations in value do occur, but it’s the long term where property really shines.
Property can be leveraged easily and safely. The loan to value ratios (LVR) with all the major banks is 80% and this hasn't changed in many decades. For every dollar you have to invest in property you can leverage those five times.
A well selected property in a market with the right fundamentals can expect to increase in value by around seven per cent per year on average. Some years it’ll go up one percent, others it might rise 20 per cent. But look at values over a 20-to-30-year period and you’ll see two to three price cycles of growth delivering dependable gains… and that’ not even allowing for the added return from rent.
Best of all, the value of property compounds on itself. Because you can’t sell down ‘part’ of the property, any gains you make are effectively reinvested into the asset. Simply by holding a house or unit you are helping it to enjoy exponential growth in value.
In short, patience and tenacity deliver extraordinary returns in real estate.
I have seen it firsthand. A property I purchased many years ago in far north Queensland cost me about $350,000 and returned $400 per week in rental. Many times, over the years I thought I’d made an error in acquiring the home, but the income was helping pay the mortgage and it was rarely vacant, so I just let it sit.
Today it’s returning $700 per week in rent and its equity upside is helping finance me into more investments this year. My patience has been rewarded.
So instead of screaming “Get rich quick” try shouting, “Get Rich! Quick!”.
My team and I can help you unearth excellent properties that will suit your individual investment criteria and ensure you create a portfolio of stable, secure assets delivering consistent growth over time.
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