Do you want to become a property investor but are not sure how to go about it? The good news is that you can get started with just 20 per cent equity in a property, some robust advice and less than $50 a week.
Many of us make new year’s resolutions and quickly forget them.
Imagine though, if 2019 was different and you made yourself a pledge to create a better financial future for yourself. For potential property investors, it is a great time to make real use of the equity in their home and any spare savings. Very low-interest rates … relatively high rents … and a strong market outlook in just one of Australia’s top capital cities – it provides an ideal environment for investors who want to purchase cost-effective properties.
For those who have read some of our past columns, you will have noted that most decent investment properties cost less than $50 per week after factoring in rent and tax benefits. To justify using your equity in an existing property under such a scenario, you would need less than 1 per cent growth per annum. With growth forecasts conservatively around 6 per cent to 7 per cent per annum for one of Australia’s capital city property markets, it makes sense to find out how to best use your equity and borrowing capacity.
The rule of thumb is that you need 20 per cent or more equity in your property to get started. Your lender requires you to keep 10 per cent equity as security, leaving the spare 10 per cent to be used to pay a deposit and other associated costs to buy an investment property up to a similar value as your current property.
It is also generally recommended that you keep some of the equity as a buffer – a kind of cash reserve – to help manage any potential fluctuations in cash flow. A good property investment adviser can help you understand how to best use your equity and borrowing capacity to invest effectively and safely.
This allows you to start building your portfolio of properties in a way that best suits your circumstances. Once you get started, and on the back of sound advice, it is possible to safely build a great portfolio of about 10 properties in 10 years with about 6 per cent capital growth.
A good property advice business can address all the important concepts that contribute to success – such as why it can cost less than $50 a week to own most new investment properties valued from $400,000 and often up to $800,000. They can also explain strategies to increase your return on investment and minimise income and land tax while identifying any potential risks and how to best manage them.
With all the facts explained, many once-hesitant potential property investors are surprised at how easy and realistic it is to set up a safe and effective structure that can get them on the path to an early and wealthy retirement. Acting now to buy just one investment property, rather than putting it off for a year or two could potentially help you retire three to five years earlier than expected, or give you an extra $50,000 to $100,000 to live on when you quit work. Or, for others, it could help you fund a better education for your children. There are lots of reasons to make this a priority.
So make a great start to 2019 by ensuring that your valuable equity is more active – it could be the best new year’s resolution you’ve ever made!
This article was written by Richard Sheppard for the January 2015 edition of Peninsula Living magazine.