Have you ever felt that you need to do something about your financial future, but just have no idea where to start?
Or you have read up a lot of posts about property, spoke to investment advisors and now is even more confused than ever about what to buy and where to buy?
If the answer to any (or even both!) of the questions is a “yes”, then you need to read on.
Fundamental concept in wealth creation via property
Investing in property is actually very simple yet lots of people over-complicate it. Without any technical terms involved, at a holistic level, you look for properties that you believe will grow over time and provides a decent enough rental income so you can afford to hold it long term. Then just buy and hold for 10 or even 20 years. It is that simple.
Fundamentally how it works is you can leverage a big mortgage today from the bank, and as dollar continues to lose it’s value over the long term, so too is the mortgage. So what is seemingly a “big mortgage” today will not be of the same value let’s say, in 10 years time.
But property price is different – unlike the mortgage which stays stagnant (or reducing, depending on your repayment method) it will continue to grow with the inflation over the years. Let’s say today you have a $500K property and $400K loan. In 10 years time with inflation the value of the property may have gone up to $800K. But the loan remains the same (or less).
That’s how wealth is created long term with property. It’s a simple, proven but powerful concept. Many families have owned their home in the early days and am able to enjoy a comfortable retirement by just following the simple buy and hold strategy. And then there are other strategies to speed up the process but we will cover that in separate topic in another day.
So as long as you are willing to purchase a property and hold it long term, you will be unlikely to lose money.
What to buy and where to buy?
OK so now we’ve covered the fundamental concept of investing, let’s have a talk about what to buy and where to buy. This has a lot to do with your financial goal, time frame to achieve the goal, and your strategies.
As an example let’s say Joe is 35 years old, has a day job and would like to be able to retire comfortably when he gets to 65. He also has a lot of personal interest to pursue outside of work so don’t have much time to be an “active investor” (or may not be bothered with all the hassles!). In this case a simple buy and hold strategy would suit him better and he may want to just acquire properties that are sitting in suburbs close to a capital city CBD, close to transport/shopping centre/school and have good demographics living in the suburb.
Once he purchased a property then all he needs to do is just keep renting them out until the time he’s ready to retire. As retirement gets close he can start selling one down each year and then pay off debt on other IPs. Joe will then be able to live off the passive income (rent from other IPs or invest in other asset classes such as shares and live off dividends).
As another example – Sam is 50 years old today, has a decent pay job and would like to ensure he maintains his current lifestyle as he gets to retirement. To speed up the wealth creation process, Sam may want to be more aggressive and be an active investor rather than just applying the buy & hold strategy. To do this, he may want to apply a buy, reno and extract equity strategy to speed up accumulation of IPs in the shortest timeframe possible.
In terms of suburb selection, to maximize his chances of price growth he would want to pick an IP up in a blue chip suburb as close to capital city CBD, in a decent location with good infrastructure. But most importantly the type of asset he needs to pick needs to have potential for value-add. Examples such as cosmetic renovations, subdivisions – anything along the line which has potential to manufacture equity to get to his goal quicker.
As you can see because Joe and Sam’s current situations are different so their strategy will be different and the type/location of property will also vary. For this reason generally there is no “right investment property” because it will be different for everyone. We help guide our clients to pick what to buy and where to buy based on understanding their short, medium, long term goal and the strategy that will take them there.
If you are struggling and requires assistance in making the first step – simply contact using the contacts form and we’ll be in touch to help you 🙂
P.S. For different type of value-adds refer to the following blog articles:
What types of Value Adds are there for a property? (Part 1)
WHAT TYPES OF VALUE ADDS ARE THERE FOR A PROPERTY? (PART 2)