It’s true. I’ve had a long standing affair with Property investing for well over a decade and I must admit, the love keeps growing.
For those who have never invested before, they probably think that I am delusional. After all, on the surface, property investing doesn’t make much economic sense. For example, if you are buying an investment for around $500k, you will need to put down a 20% deposit which is probably around $100,000 of your hard earned dollars and then you borrow the remaining $400,000 plus costs from the bank. Reality hits home when you realize that you are responsible for the repayments on that mortgage. At this point many people are totally freaked out because they just don’t understand how property investing actually works.
Let me explain here:
While you are responsible for the repayments on the mortgage, you do have help along the way
- the tenant pays the rent each month
- if the rent does not cover the mortgage, you can claim the difference from the tax office either monthly or annually
- if the property is new or renovated, there is depreciation that can be claimed which reduces your income tax each year
- if the rent covers all the expenses, you will pay a little more tax
- if you have purchased well (in the right time of the cycle, negotiated a great price, in a growth market) you can expect that the investment will provide you with a better than 5% yield and at least 5%-8% capital growth each year
Where many investors come unstuck is when they make some fundamental mistakes and I am seeing it happen right now
Mistake # 1
They buy an investment in an overheated market that is at the top of the cycle.
Because the market is at the top of the cycle there is virtually no negotiation and no upside on the purchase price
Mistake # 3
Because the purchase price was so high, the yield is very low and that means the investor must spend more of their own money each month to top up the mortgage. It’s then a matter of waiting, sometimes for years, before the property has sufficient capital growth and rent increase for the investor to purchase another property.
It’s crucial to buy the right property, in the right time of the property cycle and for the right price to ensure that there is fast capital growth to enable more property purchases.
These 3 factors require a deal of skill and using an experienced Buyers Agent can mean the difference between buying one property every 5-7 years or buying one property each year for 10 years.
If you need to super charge your portfolio, start working with an expert who can make it happen.