Thinking about becoming a property investor but not sure how to go about it? The good news is that you can get started with just 20 per cent equity in an existing property and some robust education and advice.
Many of us make new year’s resolutions and quickly forget them. Imagine though, if 2023 was different and you made yourself a pledge to prioritise your financial future and invest in yourself!
For potential property investors, now is a wonderful time to make real use of the equity in their home and any spare savings. Relatively low-interest rates (sitting just above the 10-year pre-COVID average in November), high rents and a strong market outlook in some of Australia’s top capital cities provides an ideal environment for investors who want to purchase cost-effective and high- performing properties.
In current market conditions, most professionally researched investment properties can be cash- flow positive by $50 – $100+ per week. With growth forecasts of 100 – 150 per cent over the seven- year boom period for high capital growth across carefully chosen capital city property markets, it makes sense to find out how to best use your equity and indeed your borrowing capacity.
The rule of thumb is that you need 20 per cent or more equity in your property to get started. Your lender will require you to keep 10 per cent equity as security, leaving the spare 10 per cent to put towards 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 wealth planner can help you understand how to best use your equity and borrowing capacity to invest effectively and safely. 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.
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 even with a conservative capital growth forecast of about 6 per cent per annum.
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 comfortable 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 2023 by ensuring that your valuable equity is more active – it could be the best new year’s resolution you have ever made!
Richard Sheppard is the Managing Director and Chief Property Wealth Planner of inSynergy Property Wealth Advisory. inSynergy provides professional property investment advice, property market research and specialised mortgage broking services and is a licensed investment property buyer’s agent. Phone 1300 425 595 for a free chat with an advisor.