Recently I was sitting with a couple, Ranjit and Rupinda, who were convinced that they didn’t have any money to get started in building an investment property portfolio. My recommendation to them, and the same is to you: there is a lot they can do to get started. This is a better approach than to think that there’s nothing one can do.
Here are five things to consider:
1. Setting a goal to purchase an investment property;
2. Acquire properties in the right suburb and at the right time;
3. Know how to purchase an investment property without a cash deposit;
4. An investment mindset;
5. Not letting the fear of failure stop you.
So, if you’re thinking of purchasing an investment property in 2015, and don’t have the money, then this article may help you to start thinking about how to achieve the best possible outcome.
1] Your goal
Setting a goal to purchase an investment property is no different to any other goal you’ve ever wanted to achieve. The first step is always the easiest.
You think about it. You write it down. You start dreaming about it. You begin to see information everywhere, and you can’t wait to share your ideas with friends and family. These are all good steps to take. However, the difference between achieving your goal in 2015 or not is to create a thorough property investment plan.
Think of this more like your action plan. Having a well thought through plan will provide you with greater clarity on what you need to do in order to realise your goal.
The reward for creating an investment property plan is that you can begin to build and grow your own property portfolio, which is a major step towards your financial independence. Some of the things to include in your action plan are listed below. If you are serious about your future, then it’s important to ensure that you get the right advice, and make decisions from a long-term perspective.
Credit history: Your credit file is one of your most important assets, and you need to manage this. While you can spend time getting everything in place, if you have a bad credit history the banks can reject you—even for something as simple as having paid a phone bill late.
Getting an accurate and up-to-date report about your credit history is easily done via www.mycreditfile.com.au. If your credit file is in order this is great news. If it’s not, then seeking advice about how to rectify this will need to be included in your action plan.
Mortgage broker: There are two different types of mortgage brokers: the ones who understand investment property and the ones who simply tick the boxes and get you a loan. Working with a mortgage broker who specialises in property investment ensures that your finances are set up correctly from the beginning and are in line with your long-term financial goals.
While you may only be thinking about purchasing one property in 2015, it may be the first of many. Therefore, getting the right advice will pay dividends.
Cashflow: Understanding where you stand financially will ensure that you take calculated risks when investing. Purchasing the right type of property, in the right location for your financial strategy will assist you to build a property portfolio that is sustainable in the long-term, and provide you with the returns that you are striving to achieve.
Cashflow is more than just about working out whether you can afford a property. It’s your responsibility to know you can service the loan. Therefore, as an investor you will need to know what your weekly or monthly expenses are in terms of maintaining your investment property. You’ll also need to understand whether it’s best to opt for an interest-only loan repayment, or if you should fix your loan.
2] Acquiring the best property
Realising your future financial goals is dependent upon your property achieving the maximum capital growth. So, it’s vital to always acquire properties in the right suburb, at the right time, and with the best available land. Here are some things to consider when looking at where best to invest.
Know the Australian market: By taking a look at all areas within Australia, as opposed to your own neighbourhood, there’s no limit placed on your decisions. Investing in your neighbourhood is easy because it’s familiar to you, and therefore comfortable. However, it may not be the right place to start. If you look at the graph shown here, you will see some of the states performed far better than others.
Identify your areas of interest: From the Australia-wide perspective, select two or three areas that you would like to investing in. This provides you with a focus to start your property selection process. The more you know about an area, the better your decisions will be.
For example, should you invest in Blacktown, NSW, or Doreen, Victoria, or Yarrabilba in Queensland? If you are based in Sydney, then you may not have heard of places such as Doreen or Yarrabilba.
When you begin to focus on a couple of areas you’ll discover things such as Doreen is in one of Melbourne’s fastest-growing areas. It’s 26 km north-east from Melbourne’s CBD and is in the City of Whittlesea. There are great opportunities in Doreen with a very good rental income.
The same is true with Yarrabilba. Yarrabilba is between Brisbane and Gold Coast. There is a lot of money being spent on infrastructure in this western corridor. The growth potential in investing in Yarrabilba is promising.
Don’t follow the crowd: It’s easier to follow the crowd and get caught up with what everyone else is doing. However, this may not give you the results you’re after. The key is to look for rising markets that are regarded to be in a slump. Ideally, these markets would have low vacancy rates, a high amount of infrastructure investment, and limited supply of property. They should be close to amenities and public transport, have an increasing population growth, and part of a strong local economy.
Knowledge is power. Therefore, if you don’t know what to do, or where to start, then I highly recommend that you seek advice rather than trying to figure everything out by yourself.
3] Investment property without a cash deposit
Did you know that you could buy an investment property without any cash money being outlaid? If you’re a homeowner or a mortgage holder, using the equity in your own home will help you invest in a property without the need to come up with a cash deposit.
When you work closely with a mortgage broker, who specialises in investment property, they know you’ve already done the hard work of saving for your deposit. They also know there will be equity in your home and that it’s important this is not put at risk.
The minimum deposit you need for an Investment property is usually 5 per cent. An independent broker can work with you to ensure that you allow sufficient funds to cover all the associated costs. Such as stamp duty, borrowing fees, and legal fees for settlement. They’ll also guide you in getting a valuation of your home.
It’s quite common to hear about people being turned down by a bank for a property investment loan. Even though they feel sure you can afford it. The key is to not to be disillusioned if your first approach to a bank is unproductive.
If you have a well-prepared budget, assets and liabilities statement, understand the importance of including any tax refunds this will make all the difference.
4] An investment mindset
If you’re new to investing then there is a lot to learn, a lot of information to process, and it’s highly likely that you’ll experience some fear, doubts, uncertainty and question whether it’s all worth it. Transitioning from a non-investor to an investor will challenge your reality.
However, at some point in time you will need to consider your long-term financial options. So taking the time to figure this out sooner rather than later will pay dividends.
This is why I also recommend that you write down why this goal is important to you. When you know why you’re doing something, then you can overcome the obstacles along the way a little more easily. You’ll take it all in your stride. You’ll get creative and identify solutions that you never thought possible.
This is why working with the right team of professionals is important. People who understand the journey you’re on. When you have those early morning questions like: “Have I done the right thing?”, Or: “What if I lose my job, or something happens to my health?”. These are all valid questions. And, for every question there is always more than one solution.
5] Fear of failure
The biggest fear you need to consider is what you’ll do if you never set the goal in the first place. The next biggest fear is what if you set the goal and then take no action. The sad thing is you’ll never know how close you were to winning versus failing. If you create a solid plan of action, then there is no reason for you to fail.
My conversation with Ranjit and Rupinda focused on making 2015 their most successful year. The year ahead, 2015, is a year to set your goals, create your action plan and then surround yourself with the right people who will support you to build your investment property portfolio. Wishing you every success for a very prosperous 2015. n
The writer is the founder of IPNA—Investment Property for New Australians. He was born in Sri Lanka and is a best selling co-author of three business books
Published in The Indian Sun / Indian Magazine in Australia