When and how do i start out when investing in property. Do I buy my home first or should I start with an investment property?
Let me try to answer this as simply as possible, yet provide you with some easy tips to begin your property investment career and create a successful property portfolio.
First of all: buy your own home
Investing
Owning your own home is the first step most people should take when beginning to invest in property.
Many people will immediately say that the can not afford the new luxury house, but keep it realistic and start with what you CAN afford.
Keeping your first home goal realistic and within budget is possible – just lower your expectations a bit. Perhaps you could consider a property that needs a bit of work done to it. Buy in a cheaper suburb that you can afford.
Often when buying a property that you can fix up a bit to add value or by buying in an upcoming area, you can get your foot in the door.
As a rule most people will not buy a house that needs some attention. This is the type of home that you can get at a discount. In no time your fixed up property will have much more equity than you did imagine.
Not many of us are easily able to save the deposit for that first investment property, so chances are you will have to re-mortgage, in other words borrow against the increasing equity in your own home.
This to most people is a big NO because we have been brought up to believe that debt is a bad thing and should be avoided as far as possible.
The reason many people never get started with property investment is because they are too scared to take on more debt and borrow against their home. They often think – “I’ll pay off my mortgage before I take on more debt.”
Through this thought process, you will never step out from only being a homeowner, to being an investor.
Again, the key is to be realistic about what you can afford and when you can afford it. I would never suggest that first time investors get in over their heads, but you have to make a start and leapfrog off this new equity you have built up.
Servicing the debt on your first investment will be easier than paying off your home loan because if you structure it right the tenant will make your mortgage payments for you. The tenant does it by paying rent.
The criteria you use to buy an investment property are different to those used when buying your home. You choose your home with your “heart” and its natural to make some emotional decisions. But you should choose your investment by doing the calculations.
Consider buying your first investment in an area that has good capital growth and perhaps something that needs minor cosmetic improvements that will be attractive to tenants, near all the right amenities and will therefore always rent and re-sell well. It doesn’t have to be a house. You could consider buying an apartment in a great location that tenants will be scrambling to rent from you.
With these key ingredients you can’t go wrong. Again, just make sure the numbers stack up, you can afford the commitment and you’ve done the necessary research to pick a winner!
Just remember the ingredients to success: Scarcity value of the property itself and popularity of the property and the area to tenants as well as owner-occupiers.
Of course, once you’ve fixed up your renovation project and added substantially to its value, it’s time to step up to the next rung of the property ladder and re-finance this investment. This may be easier than you think as you will now have increasing equity on two properties – your own home and your first investment.
Do not stop with only one investment property – keep on moving forward.
Just keep on doing the calculations. Do not look only at the price of the property, look at what the repayments on the property is going to be, with of course the other costs like insurance, vacancy factor, maintenance etc. Included. Then find out what the tenants in that area pay for a similar property. Just keep on doing the calculations.
Remember this crucial thing and you will not go wrong as many “investors” do. Never look at the value of your investment and think that is what you are worth. Tomorrow the market turns for the worse as has recently done and your $100 000 investment is suddenly ‘worth’ half of that. On the other hand, your rental income is still intact, and you are not out of pocket if you did your calculations correctly in the first instance. With other words, look at the income that you are generating out of your property.
Now that you have a mini portfolio, your options suddenly increase. With a few properties working for you and producing income the key is to keep the momentum going and take more steps up the property ladder.
The big problem for many of us is servicing the loans on these investment properties. If you buy well located properties in areas of sound capital growth, even in today’s markets where rentals are rising, the mortgage payments and outgoings will add up to more then your rental income. THIS is what will kill you. SO do the calculations carefully before signing the offer to purchase.
By now you have nothing to fear. You know the rules of the game, you've successfully bought a handful of properties that are all gaining income for you year in, year out and there’s no stopping you!
It’s also important to get your tax structure right. Make sure you know exactly how you will hold the properties (e.g. as an individual investor, in a trust, etc.), how you will organize finance, legal aspects, taxation and the like.
Do your homework first by learning the ropes by investing in yourself by studying the investment rules. If you do not do that first, you will in the end pay dearly with bad investment decisions. jward
When and how do i start out when investing in property. Do I buy my home first or should I start with an investment property?
Let me try to answer this as simply as possible, yet provide you with some easy tips to begin your property investment career and create a successful property portfolio.
First of all: buy your own home
Investing
Owning your own home is the first step most people should take when beginning to invest in property.
Many people will immediately say that the can not afford the new luxury house, but keep it realistic and start with what you CAN afford.
Keeping your first home goal realistic and within budget is possible – just lower your expectations a bit. Perhaps you could consider a property that needs a bit of work done to it. Buy in a cheaper suburb that you can afford.
Often when buying a property that you can fix up a bit to add value or by buying in an upcoming area, you can get your foot in the door.
As a rule most people will not buy a house that needs some attention. This is the type of home that you can get at a discount. In no time your fixed up property will have much more equity than you did imagine.
Not many of us are easily able to save the deposit for that first investment property, so chances are you will have to re-mortgage, in other words borrow against the increasing equity in your own home.
This to most people is a big NO because we have been brought up to believe that debt is a bad thing and should be avoided as far as possible.
The reason many people never get started with property investment is because they are too scared to take on more debt and borrow against their home. They often think – “I’ll pay off my mortgage before I take on more debt.”
Through this thought process, you will never step out from only being a homeowner, to being an investor.
Again, the key is to be realistic about what you can afford and when you can afford it. I would never suggest that first time investors get in over their heads, but you have to make a start and leapfrog off this new equity you have built up.
Servicing the debt on your first investment will be easier than paying off your home loan because if you structure it right the tenant will make your mortgage payments for you. The tenant does it by paying rent.
The criteria you use to buy an investment property are different to those used when buying your home. You choose your home with your “heart” and its natural to make some emotional decisions. But you should choose your investment by doing the calculations.
Consider buying your first investment in an area that has good capital growth and perhaps something that needs minor cosmetic improvements that will be attractive to tenants, near all the right amenities and will therefore always rent and re-sell well. It doesn’t have to be a house. You could consider buying an apartment in a great location that tenants will be scrambling to rent from you.
With these key ingredients you can’t go wrong. Again, just make sure the numbers stack up, you can afford the commitment and you’ve done the necessary research to pick a winner!
Just remember the ingredients to success: Scarcity value of the property itself and popularity of the property and the area to tenants as well as owner-occupiers.
Of course, once you’ve fixed up your renovation project and added substantially to its value, it’s time to step up to the next rung of the property ladder and re-finance this investment. This may be easier than you think as you will now have increasing equity on two properties – your own home and your first investment.
Do not stop with only one investment property – keep on moving forward.
Just keep on doing the calculations. Do not look only at the price of the property, look at what the repayments on the property is going to be, with of course the other costs like insurance, vacancy factor, maintenance etc. Included. Then find out what the tenants in that area pay for a similar property. Just keep on doing the calculations.
Remember this crucial thing and you will not go wrong as many “investors” do. Never look at the value of your investment and think that is what you are worth. Tomorrow the market turns for the worse as has recently done and your $100 000 investment is suddenly ‘worth’ half of that. On the other hand, your rental income is still intact, and you are not out of pocket if you did your calculations correctly in the first instance. With other words, look at the income that you are generating out of your property.
Now that you have a mini portfolio, your options suddenly increase. With a few properties working for you and producing income the key is to keep the momentum going and take more steps up the property ladder.
The big problem for many of us is servicing the loans on these investment properties. If you buy well located properties in areas of sound capital growth, even in today’s markets where rentals are rising, the mortgage payments and outgoings will add up to more then your rental income. THIS is what will kill you. SO do the calculations carefully before signing the offer to purchase.
By now you have nothing to fear. You know the rules of the game, you've successfully bought a handful of properties that are all gaining income for you year in, year out and there’s no stopping you!
It’s also important to get your tax structure right. Make sure you know exactly how you will hold the properties (e.g. as an individual investor, in a trust, etc.), how you will organize finance, legal aspects, taxation and the like.
Do your homework first by learning the ropes by investing in yourself by studying the investment rules. If you do not do that first, you will in the end pay dearly with bad investment decisions. jward