How to Build Wealth in Australia 2021

Ever wondered how you can build your wealth and set yourself up for the future? Here are some tips. 

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Table Of Content

1. Mindset & wealth
2. Budget & balance
3. Investing to grow wealth
4. Building wealth with Real estate
5. Property flipping case studies
6. Protecting your wealth

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Building wealth is an important goal to set for yourself, as capital is required for many components of life. 

When the COVID-19 pandemic hit, many were thrust into unemployment almost overnight and over a third of Australians expressed uncertainty that they would be able to pay their rent.

This unpredictability of life is precisely why it’s important to build up your wealth, as a way to prepare yourself for any unexpected events that may occur, such as medical procedures or a change in your employment status. There are several ways to build your wealth, and we will outline them in this article, as well as covering the way that most Australians build their wealth: The property market.

Mindset & Wealth

A crucial prerequisite to building and maintaining wealth is having the right mindset. It can be easy to be overrun by fear, procrastination, or a host of other self-imposed barriers that we place on ourselves which stop us from achieving financial success. 

A great saying that illustrates the impact of your mindset is: “wherever you go, there you are.”

While that saying may seem redundant or obvious, it means that your mind will be with you no matter what life circumstances you’re in. Nothing illustrates this point more effectively than the fact that the majority of lottery winners go broke.

Despite an enormous change in their financial situation, the average mindset of a lottery winner doesn’t change. Instead of researching the best ways to invest the millions they may have won, or figuring out how to protect their newfound wealth, they splurge their money. Hence why lottery winners are more likely to declare bankruptcy than non-lottery winners.

You must first learn to break free of negative mental habits and patterns and develop a healthy and effective mindset toward wealth and life in general if you wish to have financial success.

Balance your budget

While this step may seem trivial or obvious, managing your expenses is the first step toward building wealth. You’ve probably heard the expression “the rich get richer”, and this is because those with substantial wealth can put some of their capital into investments to exponentially grow their wealth. This is why you want to balance your budget. Balancing your budget includes reducing your debt, and saving more than you spend. 

If you have a fixed income, you’ll want to set yourself a fixed budget so that you know exactly how much you’ll be able to save over time. While many people hope that a pay rise will help them to grow their wealth, oftentimes people will increase their spending alongside their increased income, and their savings remain unchanged. 

Now that’s out of the way, let’s get into the other ways to build wealth. 

Investing to grow wealth

You don’t want to depend solely on your income in order to grow your wealth, as this means that you are trading your time for money. If you retire, or get injured and stop working, your one income stream will dry up. As such, it’s important to develop additional income through investments.

There are several different types of investments that you can make, with the most popular types being property, equity and commodities. Below, we’ll teach you some of the ways you can invest your money to build wealth for the future.

Source: investors.asn.au

Assets used to build wealth

An asset is defined as any resource owned by a person, business or government that can be exchanged for value. 

One example of an asset is a commodity such as copper or gold.

Source: Long term trends

Since 2001, the price of an ounce of gold has more than quadrupled. Many consider commodities to be a reliable method of hedging against inflation and the devaluing of fiat currency. 

Another popular asset to help you grow your wealth is through equity or shares. 

A share is a single unit of ownership in a company, and when the value of a company increases, so too does the share value of that company. 

Equity, on the other hand, represents your total ownership of an asset. When you buy shares in a company, you gain equity in that company. When you put a deposit down on a property, you own equity in that property. Equity is desirable when you expect an asset’s value to increase. 

For example, if you had invested in the automobile company Tesla five years ago, you would have increased your money by over ten times your initial investment amount. 

However, given that it’s very difficult to predict which companies or commodities will grow and which will fail to succeed, a safer option for investors can be to invest in a fund.

A fund pools together money from investors and places it into several different companies or commodities so that funds are diversified across multiple sources, meaning that the risk for investors is spread out. 

For example, your fund might centre around the ASX200, meaning that you’ll only be invested in the top-performing publicly-listed companies in Australia. 

Investing in shares is a way to build wealth with little money, as it doesn’t require a large amount of capital to get into. 

Though here in Australia, the Australian Dream often refers to one particular kind of investment: property investment.

Building wealth with real estate

The Australian Dream has always been focused around buying property, and for good reason. 

The property market is considered by many to be a safe investment as it’s less volatile given that land is finite while Australia’s population growth is inevitable. 

One only needs to look at property values over the past three decades to see that Australian housing prices have increased by an average of 7¼ per cent every year. 

Long-term Australian real price index for housing

Source: Ryan-Collins and Murray (2020)

And right now, the property market is growing at the fastest rate seen in decades, thanks to low-interest rates and an inability to travel which has left money in the pockets of Australians. 

During the COVID-19 pandemic, many Australians have learned that creating wealth through property is a great way to set themselves up financially and depending on your financial situation, it might be a good path for you too.

Types of Property Investing

There are many ways to utilise the property market in order to generate wealth, with many Australians opting to hold property as it appreciates alongside the rising property market. 

However, here at DG Institute, we primarily focus on two methods of property investing that can generate wealth over a shorter period of time: flipping property, and property development. 

Property Flipping is a form of property investing but involves adding value to a property through structural or cosmetic changes and selling it once you’ve completed the renovations for additional profits. 

Small Property Development typically involves:

• DA uplift
• Subdividing an existing property to be sold or leased as multiple properties 
• Residential unit development 

Property flipping versus small property development

There are pros and cons to both property flipping and property developments, and ultimately it depends upon your financial situation as to which is best for you.

In order to determine which method is right for your situation, let’s take a look at the benefits and risks involved in flipping property and small property development. 

Benefits of flipping property 

• Flipping property can yield much faster profits than waiting for your property value to appreciate over time. When you purchase and hold property, it is a passive investment as you’re primarily generating value by paying off your home loan in order to gain equity in that property while hoping that the market will go up. By contrast, property flipping, it’s an active investment as you are creating value as you renovate. 
• As you learn to renovate properties you will gain value-adding skills that will help you to accelerate future renovations, potentially saving you time and money with each property you flip. 
• If you purchase an undervalued property prior to renovating it, you can have more control over your profit margins by doing sufficient market research and being strategic about how you add value to the property. For example, your renovations may be structural or cosmetic depending on the circumstance and what your desired result is.

Risks of flipping property 

• Timing is critical when it comes to flipping properties. If delays occur due to unforeseen events, there will be increases in expenses that will eat into profits. 
• If you are inefficient at renovating a property, you may make a profit, however, it may come after spending months on your renovations. For example, if you spend 2,000 hours renovating and sell your property, and you generated $20,000 in profits, you have essentially worked for $10 per hour. Without the right expertise, property flipping can be more trouble than it’s worth.

Benefits of property development 

• Developing property on vacant land or subdividing land to build multiple properties is a great way of generating wealth as it often yields the highest returns of any type of property investment. In most cases, the effort/reward involved with property development is more substantial than other kinds of property investment. 
• Small property developments are a good starting point as they are generally easier to obtain finance for.
• State governments typically offer incentives to increase residential development, whether they be grants, tax incentives or deductions such as CGT exemptions and depreciation. There is also no stamp duty when developing property. All of these factors and incentives allow those in property development to save money on expenses. 

Risks of property development 

• Like flipping properties, unforeseen circumstances can reduce your expected profits significantly. For example, delays in getting approval from your council, changes to the laws surrounding property development, increases in the cost of construction materials, or issues with the development site can all add to the cost and time of development and reduce profits. 
• If you incorrectly identify what buyers are looking for in a property, you may end up spending money on something that isn’t desirable or a value-add. This can result in difficulty selling or leasing the property for the price that you were hoping for.

Property flipping case studies

A graduate of DG Institute’s Real Estate Rescue course, Anare, was able to find an undervalued property, subdivide it, and sell the subdivided land for a healthy profit of $247,000.

“I think the biggest thing is to trust the process. I’ve been [renovating properties] for 6 years now, and it’s been one of the best things that I’ve done.”

– Anare, a graduate of DG Institute’s Real Estate Rescue course.

Another student of DG Institute’s Real Estate Rescue course, Mary Liu, managed to renovate an undervalued property and walk away with $150,000 in profits. 

You can find more case studies of property flipping success stories on our website here.

Protecting your wealth

As we illustrated earlier, it’s important to look for ways to build your wealth in order to protect yourself against the unpredictable nature of life and to set yourself up for retirement. 

However, once you have started to build wealth, it’s also very important to learn how you can safeguard it. If someone sues you or you get into a precarious financial situation, all of the assets you’ve accrued can be put at risk. 

If you would like to learn more about what asset protection is, you can read more here.