Ed’s note: This post was written by guest editor Margie Hulse of Right Riches for You.
The majority of people think that making money through property is difficult and expensive. If you wish to buy land in the middle of a major city then you will probably find that it is both expensive and difficult. There are easier ways to make money through property.
First, how do you get started? The way I got started was originally buying a house to live in. This is the piece of real estate that is going to be the most expensive. Why is that? – this is real estate that is not going to make you lots of money. However, it will enable you to get into property investing the traditional way. It may be obvious, however, when you are buying property you want to pay the cheapest price possible, even below the government valuation if you can. That way you immediately have equity in that property.
What is equity?
Equity is the difference between the amount you owe and the value of the property. The more you create positive equity, the faster you are able to use it to create a property portfolio. How this works is that you use the equity you have in your property as a deposit on the new property. The amount required will depend on the bank you are using and the policies around lending to property investors at the time. This varies from time to time and country to country.
There are three locations to consider looking at when building a rental portfolio – one is the lower economic areas of a city, the second is flats or townhouses, or three, look at a town outside of a major city. All these areas will have property prices lower than those where you probably live. Our first investment property was a two-bedroom flat which we bought off plan to help a developer friend out. We got a great deal as we bought off the plan and had a high percentage of equity. We then used this investment to leverage and invest in more rental property.
What to look for
When you start actually looking at the properties in these areas, remember that you are not going to live in it. This is purely for investment. You require the property to be sound and look good. It does not need all the latest modern conveniences or the bells and whistles you would like in your own home. We look for property that is suitable for a family to live in – families tend to want longer term leases and that means a steady regular income. As long as the numbers work, then you can inspect the property and determine if there are any obvious defects.
Find a mortgage broker or bank manager who works with, and for, you. These are the people who will make getting a loan easy. Sure, you need to have paperwork proving that you are able to service the loan, however you do not need to be spending more time than necessary when you could be out sourcing your next investment property. Having good people on your team includes real estate agents, bank managers and property managers. These people make earning your money easy. Real estate agents will often let you know of properties suitable coming up before they are advertised, which means you can sometimes purchase at a price below market. Property managers make your life trouble-free by looking after the day-to-day running of your rental property. They will take a fee, however I believe this is worthwhile so I am not woken in the middle of the night by some problem I can’t fix anyway. They also have great systems in place for selecting good tenants.
Often times people talk about negative gearing, which is simply offsetting your other income against the deficit of your rental income. This is an option to consider depending upon your personal situation. I prefer for my rental properties to pay the mortgage and deliver money to my bank account. There are many deductions which can be claimed through rental properties. Talk to your financial advisor to find out what is relevant to your situation.
Investing in real estate is all about the numbers. Choosing a good location and having long-term tenants all add up to a respectable return on your investment. Your aim should be to build a portfolio of properties that will bring you steady income over a longer period of time.
Margie Hulse is a business coach, speaker, consultant, property investor and Right Riches for You facilitator for Access Consciousness. She has more than 20 years’ experience in the creation, investment, promotion and marketing of multiple successful businesses. Having gained financial security for herself, she loves to show others how easy it can be to do the same.