Is investing in property affordable?

Is investing in property affordable? Yes! The answer for most people is a resounding YES!

More than that, can you afford NOT to do it?

Now remember, this is for your education only, it’s not advice – I don’t have a clue about your personal circumstances, but I am happy to take a look at them for you and see what part of this you can do.

Firstly – investing – by it’s very nature means using a resource today (time, money) for future gain. It’s not about having a property for free (although you may get lucky and it might cost you almost nothing to own ongoing) but its about a comfortable commitment for a specific purpose. If there’s no room at all in your budget for investing, maybe it isn’t for you.

But what if you could “invest” in property with just $50 a week out of your pocket, or $100? It’s not impossible! What could that $100 buy you now – a family dinner out? What could it do for you if the property doubles in value and you sell it and pay off your own home loan COMPLETELY?! Now what’s that $100 worth. This is possible!

My own story, I have bought and “held” investment properties with an intention to get some growth, sell them off and upgrade my own home without substantially increasing my own home mortgage – or better yet – decreasing it. in 2010 I did exactly this. Sold some properties so I could buy on acreage, gutted and renovated the new place and now I am living in close to a dream home, thanks to buying the right properties at the right time way back as long ago as 1997.

NOW, for all those that say properties will never double in value again I say ask your grandparents what they paid for their first home and what its worth now. When they bought their first home did they EVER imagine the average Sydney home would cost half a million dollars now? I agree with you, the likes of the 2001 Sydney boom are not going to be common place today, but slowly slowly this will happen, and you’re not going to get a piece of it if you spent your $100 on dinner out instead of a investing. But the choice is yours.

What I can tell you is:

If you buy the right property in the right location and you structure it correctly its going to cost you much less to hold than buying just any property. How do you achieve this? Get good advice. Use a property broker. Tweak the ownership structure. Have a good accountant. There are properties out there that you are never going to hear about without the right contacts and advice.

Converting your old home into an investment property is a heart decision and not a head decision. Doesn’t mean it’s wrong but consider your options & get good advice. Maybe this will work for you, maybe it won’t. Talk it through.

Buying the property next door to you because yours has done so well probably won’t work. By very definition the one next door has already gone up just like yours has – you want the one thats about to go up. And do you want to put up with your tenants shenanigans or have to toss them out and lose rent?

Cashflow positive or cashflow neutral properties do exist in the current market – that is, properties where your out of pocket expenses are equal to or less than the rent you receive. They do exist! If it costs you nothing but tying up some equity in your home what’s holding you back?

Most property investors are not using any of their own cash to get in at all – in fact your accountant should talk you out of using your cash (if you have a personal home loan). You don’t need a cash deposit to get you started.

Now, sobering down, things can go wrong:

A batch of rubbish tenants –  well kick them out when the lease ends, if there’s any damage claim it on the bond and your insurance. It will cost you a little bit of lost rent in changing over but it’s a small set back.

The market could go down – there’s no guarantees, but take a longer term view and it will recover. This is true of your home too.

You could struggle to find more tenants – not if you’ve bought the right property, and you just adjust the price a little. Taking $10 off the rent a week to get a tenant in sooner is much cheaper than holding out for top dollar.

You’ll have to pay capital gains tax on the sale – this is actually a good thing! You keep far more than you pay in tax and there are concessions if you have owned the property for more than 12 months. Capital Gains tax is a non-issue, believe me.

Still not convinced? Then promise me, promise me you will put that extra $100 a week off of your home mortgage now, at least do that because that in itself will give you some of the rewards we’re talking about.

“Things can also go very very right. How would it feel if you could pay a huge chunk off of your mortgage – $100,000 say, what could you do with the money you’re no longer spending on a mortgage? Just imagine!!”

So, why is it so affordable?

• You can use equity in your home to get you started
• You have tenants paying most of the costs
• You have potential tax advantages to cover most of the shortfall – or all of it, 
• so typically, you the owner have to contribute very little.

Let’s think about what you are doing when you are investing in property:

(Outside of super) you are creating a means to retire when you want, not at the proposed retirement age of 70 or when any future government decides it’s right for you to retire.

You are turning small change into an asset that could pay off your own home, that could give the kids a deposit for their home, allow you to choose to take a year off work and travel – whatever it is you fancy.

And here’s a head turner: you are providing economic housing for those who need or want to rent – again – you are providing economic housing for those who need or want to rent. You are doing a good thing for everyone. If you and I don’t fund rental properties then the government will have to. Period. We almost all of us start in rental properties, few of us are in a position to go straight from our parents home to our own home, it’s also almost a right of passage to share a rental home with friends or with a potential future partner. There are also many who have no desire to buy their own home, or who may not ever be able to afford their own home – where would they live without economic rental properties? And before someone tells you you’re a greedy landlord remember that the law of the land is supply and demand – you cannot be greedy with your rental because the tenant can simply chose not to rent your place.

So, if you have a combined income of around $80,000 a year or more, access to $50,000 in equity in your property or more and some spare change in your budget this property investing lark could really provide financial freedom for you down the track. Best of all it will give you choices. Choices you don’t have if you don’t do anything at all.