Elsewhere on this blog, we provided a short version of how to find money to invest in property. We listed three popular sources. However, the mortgage brokers in our Perth office have talked to so many people about this subject that a problem has emerged. Too many people want to invest but think they “don’t have enough money” to do so.
We are here to tell you: if you think you don’t have enough money to invest in property,” you are probably wrong. So we are going to give you a more detailed post with even more information that can help you become a property investor.
Why Property Investment?
There are many reasons why, but we think this one is the best. There is no time in recorded history that the average person in Australia who bought a home at market price, kept it well-maintained and held onto it for at least ten years hasn’t made money. If you are looking at property investment as a long term vehicle for making money, single family homes are the most reliable investment you can make.
In the last fifty years, if the housing market in Perth had grown at exactly the same rate as inflation, the median home price would be roughly $120,000. Currently, the median price in Perth is $942,500. For the entire metro area, it is roughly $530,000. In other words, real estate rises at more than four times the rate of inflation.
How it Works
Most rental properties are bought using an interest-only loan. Ideally, you can at least break even on the monthly mortgage repayments. The mathematical formula is: expenses plus interest = rental income. While those expenses include taxes, insurance, maintenance and property management, it is still reasonable to expect close to a break-even proposition or even a positive cash flow on a rental property if you have selected the right property and paid the right price.
As the value of your home grows, it creates equity. If you buy a home at interest only for $500,000 and it is worth $600,000 five years later, you now have $100,000 in equity. If you have multiple properties, this can add up fast.
Why You Have Enough Money
Most people have resources they don’t even know about or have forgotten. One of the most commonly used is the equity in your home. A simple refinancing can help you draw from the equity of your current property to finance an investment property. Most property investors keep leveraging the equity in their current properties to purchase more properties.
Even if you don’t have 20%, you may be able to get into a home for as little as 5% down if you purchase LMI or Lender’s Mortgage Insurance. Believe it or not, this can often be rolled into your home loan and paid as part of your monthly repayment. This is called “capitalising costs” and can be applied to other various costs of buying a home.
Another great strategy: buying off the plan. If you buy land and then have the home built, you only have to pay stamp tax duty on the land. In addition, you can depreciate the building on your taxes.
If you really don’t have enough money to invest or you want to leverage the power of your money with that of someone else, you can try a joint venture. This is often done with family members or friends. We have even seen groups of five or more people do this as a way to get in.
The growth of a property portfolio tends to be somewhat exponential. The further along it goes, the faster it grows. If you have more people involved, you can grow your portfolio faster than if it’s just one person. That way, you can all take advantage of the ability to turn investment profit into more investments, creating more profit.
Call Purely Finance Today
The mortgage brokers and financial planners in our Perth office have helped many of your neighbours start careers in property investing, allowing them to retire early. If you are interested or want more information on how you can become a property investor, call us today: (08) 9453 8888.