EPI 101 | Ripehouse revisited – with Jacob Field

What’s news

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  • Mastermind Jo – tenants moved out
  • Kaz – REIQ 2015 Buyer’s Agent of the Year

Feature – Ripehouse revisited – with Jacob Field

Jacob-Field-Ripehouse

Quick tip and action

Ripehouse website
  • Check out the tutorial videos for Ripehouse and take note of the parameters used to assess investment locations and properties.  Think about how you could utilise some of these parameters in your own investment analysis.

Getting your head right – 1.Why invest in property?

Everyday Property Foundations

This series of articles is for the beginner investor. It’s designed as a set of articles that will cover the basics of getting started in investing. It’s also appropriate for those who may wish to revisit their overall goals and investing strategy, after all, many of us have started out as the ‘accidental investor’ and developed our knowledge and strategy along the way.

In part 1 of the series we’ll be covering ‘Getting your head right’ – which looks at why you want to invest, the successful mindset of the property investor, your risk profile and setting your property investing goals.  Today’s post specifically look at why you would invest in property.

Let’s get cracking!

Why invest in property?

People invest for a variety of reasons, using a variety of investment vehicles and in a variety of ways! For most people investing is about accumulating wealth and even though when you ask people why they want to accumulate wealth you may get a bunch of different answers, for the most part, it comes down to being able to buy the things you want to buy and, more importantly, do the things you want to do.

For me, investing in property is about buying back my time. It means not having to work in a job that I may not want to be in just because I need to pay the bills, it means building up enough income producing assets to be ‘financially free’ which means instead of working for a living, I can spend my time doing the things I want to do.

We’ll take a closer look at your motivations a little bit later, but firstly, let’s talk about why people invest in property as a primary investment vehicle.

There are a many different ways to build wealth through various forms of investments. There are savings accounts and term deposits, shares and managed funds, business investments and of course, there is property.

Savings Accounts and Term Deposits

The main advantage of these items are that they are very low risk and keep your money safe and accessible. Of course, the main trade off for a low risk investment is a relatively low return, however, for many people this suits them and the concept of low risk is more important.

Shares and Managed Funds

Shares are often considered a fairly risky investment. This is because although they can offer high returns, their volatility means that they can also drop in value quite quickly and you can lose money. Investing in shares yourself means that you must take the time to educate yourself about shares and share trading or investment strategies or you can pay for that service from someone else. Managed funds are a way to handover all of the choice on which shares to buy, how many to buy and when to sell, to a third party fund manager. You also pay fees to a managed fund for this service. Many people invest in shares through their superannuation fund and until recent years, shares were really one of the only types of investments that a superannuation fund could make.

Business Investments

Many people build or invest in business to build wealth. Many people build a business without really thinking of this as investing, but in reality, building a business is also investing and businesses can, like other investments, produce cashflow and capital growth. Building a business, of course, is a big undertaking and is also relatively high risk.

Property

Property has a lot of advantages as an investment class.

  • Easy to understand – sometimes, getting your head around shares can be difficult and learning to invest in shares requires a lot of knowledge. Investing in property also requires knowledge but property is, for most people, easy to understand and deal with.
  • It’s real – you can touch it, see it, paint it, photograph it! Many investors, like myself, like the idea of having something tangible for their money.
  • You can improve the value of it – unlike other investments where you really are just a passive observer, with property you can take the ‘bull by the horns’ and manufacture your own capital growth, through renovating, developing or even thinking of creative ways to use the property. This is a really exciting part of investing in property.
  • Property is forgiving – the volatility of the share market can be scary for many and thankfully, changes in property values are not as dramatic or fast as you see in the share market. Of course when share pricing are rising sharply it can be very exciting, however, when they drop quickly it can be heartbreaking. With property growth is often far more gradual and although decreases in value do occur they are not as great.

Why do YOU want to invest in property?

So now that we’ve looked at property as an investment class, let’s look closer at why YOU want to invest in property, what is your motivation? You see, at the end of the day, owning 5, or 20 properties is usually not what it’s all about and when things get tough, like you’re trying to save for a deposit, or you have to cut back on your budget or you have some dodgy tenants that are giving you grief, then thinking about how many properties you can have or how much money you can accumulate is not something that will drive you. To understand your real motivations you need to go a little bit deeper than that and think about what your real motivation is. The things that drive me are:

  • Not having to work for an employer
  • Being able to spend my days doing things that I enjoy
  •  Being able to spend my time with my young children
  • Being able to enjoy holidays and time at the beach house

Having property to me is just the means to the end. I want to be financially free of my job and be in control of my time and my financial future. That motivates me.

How about you?

Before you get started, have a think about what your primary motivation is.

  • What is important to you?
  • What would change if you didn’t have to go to work to pay the bills?

These are the things that will really motivate you.

In the next section of this series, we’ll be looking at the success mindset and why this is important to you!

EPI 040 – Investing in US property with an expert – Interview with Trish Davies

In this weeks episode Kaz is very excited to speak to the wonderfully knowledgeable Trish Davies.  Trish is an expert in property investing in the US and was very kind to spend her time walking Kaz through the process of investing in the US –  and all this at a time when the media and property experts are either talking it up or talking it down!

Things we talk about:us-realestate-investing

Action:

  • Send us any questions you have about self managed super funds – we’ll be interviewing an expert in SMSFs very soon!

EPI 039 | Property Investment Finances Made Easy

In this weeks episode we tackle some topical banking related issues – including interest rate cuts and interest rate hikes, the reserve bank of Australia, fixing interest rates and investing in a difficult economic climate.

Things we talk about:

  • Property Investing
  • Investing in US property
  • Reserve Bank of Australia
  • Interest rate changes
  • Big banks and other lenders
  • Fixed versus variable interest rates
  • Exit clauses for property investment loans
  • Investing in a difficult economic climate
  • Positive cashflow property

Action:

  • Assess three different loans
  • Look at any existing loans that you have and understand your exit fees if there are any

Build a solid foundation with affordable property investing education

Learn how to invest in property to build your wealth with these affordable property investing education courses.

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Investing in rental property – the good, the bad and the ugly

rental-propertyInvesting in rental property is a great way to build wealth.

Both Den and I are committed to building our property porfolios as we see property as the best method for us to create wealth in the long term and to create a solid financial future for ourselves.

But it’s not all a bed of roses!  If you have listened to a few of our property investing podcasts then you would know that we don’t sugarcoat it!  There are times when I feel like just ‘selling up’ and cashing in – although, in my case, the bank still owns most of it, so that thought doesn’t stick around too long!

If you are someone considering getting started in property, then this article may help you to recognize the benefits and the drawbacks of investing in rental property as a wealth creation strategy, before you make your decision:

Investing in Rental Property – the Pros

Capital growth – This is the best advantage of all.  You purchase a property for a certain value, you wait a while and hey presto, it increases in value.  Capital growth is where you can really grow your net worth.

Rental income – The amazing leverage of using other people’s money to buy your rental property is coupled with the ability to use other people’s money to pay it off!   In some circumstances the cost of your rental property to you could be zero dollars per month and it could in fact even put money back into your pocket!

Taking control of your financial future – If the thought of working your whole life and then retiring on a government pension doesn’t fill you with joy, then perhaps the thought that you can actually take an active role in creating the sort of future for you and your family that you want will excite you!

A means to create wealth that you could not achieve through just ‘working a job’ – When you work for an employer, in most circumstances, you know exactly how much you’ll earn for the year.  There is limited capacity to increase that income and when it does it’s usually only by a small percentage on what you are already earning.  Compare this with the potential for massive capital growth that will far exceed the growth in your salary.  Compare this with the opportunity to leverage your existing investments to purchase others and compare this with the capability for you to earn income and experience increase in valuation where you may not have even lifted a finger!

Investing in Rental Property – the Cons

Dealing with bad tenants – Dealing with tenants who don’t pay regularly or at all, tenants who will more than likely not look after your property as well as you would and even tenants who can cause damage to your property.    All of these things can really make you question whether having rental property is a good idea.  It can cause stress for you, both emotionally and financially at times.

Having no tenants – This is an inherent risk of investing in rental properties.  Of course you can do your best to pick the right area, make your property presentable, advertise well and attract tenants, but there will be times when your property is vacant.  This can cause financial stress and the mortgage repayments still have to be met.

Tying up your money – For the most part you’ll need to put in a fair chunk of your own cash or equity.  Having property means that you will usually have some level of your money tied up in what is not a highly liquid asset.  So if you need to get some cash quickly, liquidating your property isn’t exactly a speedy process.

Need a significant deposit to get started – This is the one that holds a lot of people out of the game.  Worse still, people watch the property market growing at times, much faster than they can save, so it can seem like an impossible task to even break in.

Potential for value fluctuations – As much as we all like to speculate and put forward our views on what the property market is doing, no know can be certain of how property prices will fluctuate.  Sure, property prices are traditionally nowhere near as volatile as share prices, however, prices will go up and down.

Owning rental property isn’t for everyone, but there sure are some great benefits to be had.   Ultimately the decision on whether you would like to hold rental property is up to you and something where you’ll need to assess the pros and cons before deciding if this is the strategy for you.

If you decide to go ahead and jump in, then good luck!  If you think the bad side outweighs the good side for you, then don’t despair!  There are other wealth creation strategies that use property and may not include some of these downsides – ever thought of developing?

EPI 032 | How to get started in property investing with very little money

Here’s a situation we’ve probably all faced at one point or another.

We want to invest in our first (or second…or third…etc) property but we just don’t have a enough money.  So what do we do?

Well…we listen to this podcast!  In this episode we are talking about how to get started in property investing with very little money.  Now some might be thinking there is some magic bullet (the kind that comes with a wad of cash to invest) but it’s Kaz & Den here, not some hypey salespeople, so we’re ‘keeping it real’…er…dude..!

Things we talk about:

  • Working out what you have – assets, equity, cashflow
  • Decreasing expenses
  • Setting goals
  • Increasing cashflow
  • Committing to property investing
  • Partnering up with others for property investing

Action:

  • Set yourself a goal to cut expenses/increase your savings by $50 per week right now and commit to it.
  • Put your extra money somewhere to build your deposit – or – if you have a mortgage on your own home then put this extra money on your mortgage.

 

 

 

EPI 030 | Make more money from your investment property

This episode we speak with depreciation expert, Anthony Booth from BMT Tax Depreciation Quantity Surveyors.

If you don’t know about how to use depreciation to maximize the return on investment of your property then you are really losing out! Depreciation can mean the difference between a profitable property investment and a loss making investment property.

Den tells us how he is contemplating busking for a living soon and Kaz goes on a rant about tenants that don’t pay the rent! Ah, the joys of property investing!

Things we talk about:

  • Tax
  • Depreciation
  • Mortgages
  • Rental managers
  • Tenancy issues

Actions and Quick Tip

  • Check out an online depreciation calculator – we even have a walkthough video of Kaz showing you the depreciation calculator over at the BMT website.
  • If you don’t have a depreciation schedule on your investment property or properties – go get one!

Getting started in Property Investing – How Den did it

Getting started in property investing
I regularly talk on our podcast about starting a property portfolio on a low income.  I like to think I know what I’m talking about.  I have a $4m portfolio and last year was the first year I’ve ever earned more than $50k. What I haven’t spent enough time talking about is exactly how I started my portfolio on such a low wage.

Until now.

“You don’t get rich from what you earn. You get rich from how you invest.”

That is the best piece of advice I’ve ever received. Thank you to my old work colleague, Bill.  Bill was independently very wealthy and he made his fortune from property. I felt that I might be able to do the same.

1. The decision

Once the decision to have property as my primary investment was made, I had to research how to invest. My knowledge then was pretty scrappy but I knew I needed to save a deposit. At the time (1999) I started looking at inner city apartments priced at around $200,000. My quick calculations said that I’d need a deposit of about $40,000 with an additional $10,000 or thereabouts for other purchasing costs.
Six months of hard saving later, I’d managed to amass a paltry $5,000. This was never going to work. I knew I had to think outside the box.

2. The strategy

In 1999, properties were increasing in value relatively quickly. I felt I was being left behind. To get into the market faster, I decided to team up with a colleague of mine. We saw a lawyer and walked out with the paperwork to say that we were now in a joint venture to buy property!
I was on the way!

3. The big breakthrough

Within a year we had a joint deposit of around $20,000. My conversations with banks were proved fruitless so I decided, in desperation, to talk to a mortgage broker. I was shocked when he was able to get us a loan on 10% deposit! We were ready to enter the market!

4. The dumb decision

With our newfound enthusiasm, we set about looking for an investment property that would cover its costs. While I knew little about positive cash-flow property, and nothing about depreciation, I figured a $200,000 apartment that brought in $320 a week rent would serve us well. When I found it we were ecstatic. The only problem was that it was off-the-plan and wouldn’t be ready for a year.

We should have kept looking and found a place that we could purchase straight away but instead we signed on the dotted line and handed over our $20,000 deposit. Then we had to wait for the property to be built. And wait we did.

5. Landlords!

Over a year later, we were finally handed the keys to our new investment property. We put tenants in there (no insurance, of course – another mistake) and soon received our first cheque as landlords.

6. The second purchase

At the time I thought I was moving so slowly, but I managed to purchase a second apartment by myself about three years later. This apartment was a fixer-upper in a desirable inner suburb. I was able to use the equity (about $30,000)  in the first property as well as the $20,000 I’d saved over those three years. This apartment has more than doubled in value in nine years.

From there, I have been able to use equity to purchase properties relatively regularly and my portfolio is now in double figures.

Reflection

Apart from saving a deposit, the hardest thing was to get the loan in the first place. We might be used to comparing banks but there are lots of lending institutions who may be quite willing to lend you money. Our mortgage broker was able to secure a far better deal with my existing bank than I was able to on my own.

Buying off the plan was risky. Fortunately, upon completion, the property was worth more than the $200,000 we paid for it. What we lost, however, was time. By the time the property actually settled, we had managed to save another $12,000 (which would have been far greater with the addition of rental income). We probably could have purchased a second property then!

The best decision I made was to enter into the joint venture. While you have to be very careful to iron out all the legalities, joint ventures can be a great way to get into the market. In the end I only entered into one joint venture property (which we’ve since sold at a considerable profit) but it gave me a start that I would never otherwise have had!

The biggest mistakes investors make: Mistake number 7 – Failing to Act

Property Investing mistakes - failing to act

Successful property investing is easier than most people think. The mistakes that prevent most would-be property millionaires from realising their potential are predictable and easy to avoid. In this series of blogs, Den details each of the most common mistakes and how to ensure you don’t make them.

Mistake number 7 – Failing to act

I recently had a conversation with a group of experienced property investors. During the conversation we started sharing our biggest mistakes, and every one of us felt that we took too long to start investing. We held off, waiting for the perfect moment. There was always something that prevented us from starting, myself included; I hadn’t found the perfect property, I didn’t understand all about finances, I wanted to go overseas, I didn’t earn quite enough money – the list goes on.
The fact is, just like many other things in life, there is never a perfect time to buy your first investment property.

How do you know when you’re ready to buy?

Simply, you don’t. If you look hard enough, there will always be something holding you back. However, if you do the following things then you’re probably ready:

  • Get some property investing education – read books, listen to a property investing podcast (like ours!), talk to property investors, join a property investing group (like our Everyday Property Mastermind groups) and make sure you know exactly what you’re getting yourself into!
  • Do your calculations using a property cashflow calculator – make sure you know, as accurately as possible, how much this investment property is going to cost you (or how much you will make) from Day 1.
  • Do you due diligence – make sure the property and location you’re looking at has no hidden secrets and is going to earn you the amount you’ve calculated

If you really want to, you can employ a mentor or coach to help you, check out our property investing coaching or find another property coach whose style and message resonates with you.

So what can we learn?

Many property investors wish they’d started investing sooner. Fortunately property investing can be a forgiving game (I made so many mistakes with my first property and I now have a successful portfolio!) but you still need to feel comfortable about your investments to sleep at night. Furthermore, of all the mentoring and masterminding clients I have worked with, very few property have regretted buying a particular property – most of the regret I encounter is that they didn’t buy a property.

What can we do now?

Have a good look at your finances and decide whether you can afford to buy an investment property. If you can, then start checking off the other “readiness factors” listed in this blog.  Work out what you’re afraid of, and create a task or two to help you get past this fear.
There is a whole world of property waiting for you!