In 1991 I gave up my first job after only four years and decided to spend my meagre life savings on a trip around Europe. The money went very quickly and I found myself in London, at the end of the post eighties boom. The UK was in the grip of a severe recession and it was difficult to find work that paid more than a few pounds an hour. On top of that, I had no idea how to market myself. I eventually found a job with Barings Bank in the futures division that paid me about £3 per hour. I was basically the odd job boy and had no idea what financial futures were. I hated the job and the people that worked there were very unhappy. I remember coming in one morning to find that some of the operations staff had been working all night trying to reconcile the trader's positions. Of course, Barings was the bank that later collapsed in spectacular fashion after Nick Leeson "The Rogue Trader" covered up millions in losing trades.

I quit the job after only two weeks and decided to try my hand selling art work door to door. A bad choice. I failed miserably and quit after two days.
I had no money, had been paying rent on my credit card, and had 20 pence left in my pocket. I walked to Hyde Park and sat and watched the squirrels gather nuts for the oncoming winter. I was cold, miserable, and was dreading the task of asking my parents if they could lend me my airfare home. As I sat on a park bench, a beggar came up to me. "Could you spare 20p for a cuppa tea?" He asked in a strong Irish accent. How could I refuse? I gave him my last coin and he was gone.

Back at my flat, I lifted the phone to place a call to my parents and noticed there was a message on the answer machine. It was from an employment agency that I had registered with weeks ago but had given up calling. "There's a job at JPMorgan's back office in Stratford. Can you start tomorrow morning? The assignment is for two weeks."
I was with JPMorgan for nearly 14 years and eventually left as a Vice President in the Sydney office.

OK, I admit the leprechaun story is a very tenuous connection for an introduction to a chapter on property, but here's the rest of it: After being so broke and living on virtually nothing, I saved my few pounds an hour and eventually saved a small amount. I thought to myself, "What am I going to do with this?" Should I travel again and have nothing left to show for it, or should I invest it? I was sick of paying rent, and the living expenses in London were high. One of my mates at work was in the same position, so we went and checked out how much we could borrow to buy a flat. At that stage, the London property market was almost at rock bottom. We worked out that we could actually SAVE money by borrowing and buying. Within weeks, we each had ourselves a flat in an Edwardian conversion in Streatham. I only stayed there 18 months. I had had enough of the London winters and managed to convince my bosses that I'd be much more useful to them in Sydney office. I rented the flat out and headed to Australia.

A few years later, I made enquiries about selling my London flat. I had bought it for £62,000 using a £3000 deposit. It sold in 2002 for £145,000. My £3000 deposit had made me £83,000 in seven years!

Unfortunately for me, in the time I'd been in Sydney, the property boom had also taken off. I had checked out prices in the Eastern suburbs in 1997. A small two bedroom terrace was over $400,000. Too expensive I thought. By the time I wanted to buy in 2002, the same place was nearly one million dollars!
How was I to get in to the Sydney market without an astronomical mortgage? I still wanted to keep some of the cash I got from London, and didn't want to put all my eggs in the property basket so to speak.
In 2005 I found the answer...

There are a few reasons for buying property; for you to live in yourself, for income (rent), or for capital growth.

If you’re looking to build wealth, focus on capital growth. Don’t buy a property just because you like it. The residential property market in Australia is worth well over $25,000,000,000 per year.

The single most important factor for capital growth is land. Land appreciates in value. Buildings do not! If the house goes up by 10%, the land will generally go up by 20%.
The only reason you would lose money in real estate is because of greed or not doing your homework. It is the buyer’s responsibility to make sure that they find out how much marketing and commission fees the vendor is paying. Their interests are to get the highest possible price for a property. It is also the buyer’s responsibility to make sure that the bank’s valuation of the property is reasonable. It is not always the same as the purchase price.

It’s no secret that income by itself does not make you wealthy. You will never save yourself to wealth. On the other hand, capital is material wealth which can be used to produce more wealth. There is nothing wrong with borrowing to get an asset that appreciates in value and generates income.

To build your wealth, you need to establish a structure or system to manage your cash flow, acquire assets, and let capital growth increase the value of your investment over time.

So why real estate – why not invest in shares?

Residential property has historically doubled in value every eight or ten years. It also offers the security of bricks and mortar as opposed to the fluctuations of the share market.
Your returns depend on your investment strategy – where you buy, what you buy, the land content, and how you finance.
Most importantly – leverage. Residential real estate represents security or collateral for loans. Most banks will lend up to 90% of the property’s value. Leverage means gearing your investment so that the proportion of capital you invest is low in relation to what you borrow.