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Opinion: Don’t Buy What Billionaires Buy

Brayden Currey

What do they buy? Very expensive blue-chip properties in and around major business districts.


It's important to understand why. There are quite a few reasons.


They're trying to park as much capital per transaction as possible. They’re not realestate.com.au addicts like we are. They're not spending all weekend every weekend trying to find a deal that can produce a slightly better return. Their business is their thing - property is usually a diversification play. $30 million in one transaction is a more efficient use of their time. Even if, 30 x 1 million dollar properties were to outperform the $30 million dollar property.


Personal use and familiarity. Billionaires are business people and spend or have spent a lot of their time in the central business districts of the world. Australian billionaires are likely to buy mansions close to work in Sydney or Melbourne. International billionaires are more likely to invest in the places travel to for work.


Neither of these reasons are financial. Of course, they don't buy to lose money, making money is often the outcome. But they are immune to the biggest risk in property - being forced to sell in a bad market and realise a loss. A $10million dollar purchase for a billionaire is an allocation of 1% of their net worth. They use leverage to purchase but are able to pay the loan out in full at any time. The properties are often left vacant for their own irregular use. Reduction in market value of rent has next to no impact on their ability to hold through tough times. A 20% reduction in value affects their net worth by 0.2%. A reduction of 20% in rent and a 20% in the market value on a $1.5 million dollar property could spell the end of the property game for a PAYG investor. Less rent could force the sale $300,000 short of a loan amount (assuming 100% loan) carrying forward $300,000 worth of debt without an income producing asset to pay it down is a real possibility and a story that never gets told.


The best lesson we can take from billionaires is that income comes first. The most valuable thing you can do for your property portfolio is increase your personal income.


Hypothetical numbers. Not financial advice. Different strategies suit different people. I just thought I’d share this perspective as I commonly see “Buy what billionaires buy” advertised as a strategy.

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The information contained on this website is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.

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