Sick of watching your cash decline in value day after day as inflation keeps staying high? Or maybe you’ve noticed how much rent you have to pay these days just to help someone else achieve their investment dreams?
There are plenty of people in 2023 thinking about becoming a property investor for the first time.
A strong performing, income returning physical asset like property is a way not just to offset inflation, but also to benefit from it. Your debt will decline or remain the same, while your value growth and rental income keeps going up and up over time.
However, it’s important to remember that investing isn’t a one size fits all pursuit. Just like any area of work or life in general, an effective strategy will greatly enhance your chances of success. So, how do you choose a strategy?
The B.Invested philosophy
When thinking about strategies that work, you want to be able to see evidence of success. Plenty of spruikers out there will make claims of oversized rental yields, or unique growth potential, but there is very little detail in how to actually achieve it (apart from paying them plenty of fees!). B.Invested founder Nathan Birch has always been very transparent about his own property journey. He’s not just selling you a dream, he is showing you how he built his own dream from the ground up.
Nathan’s key strategy was always based on three key principles…to buy assets for below market value; with upside for capital growth; and strong rental return to enable the type of cashflow that means you can keep investing without being heavily encumbered by the assets you already have.
Affordability means more demand and less risk
You might be tempted by buzz words like ‘blue chip’ or ‘negative gearing’, but buying expensive property and offsetting it against your income for tax purposes is really the domain of people who are already wealthy and have made their money somewhere else. The more expensive a property is, the less likely it is to draw a positive cashflow rental return…and the more exposed it is to value falls if there is a market downturn.
Properties at the affordable end of the market, however, are the opposite. If you can score something for a lower price bracket on a city fringe, it is likely to be renting for a disproportionately high amount each week (especially in the tight current market), with the rental income covering its costs. This is because there is always competition between tenants for rentals at the affordable end. There are more tenants in this market who are unable to buy property for one reason or another, which puts upwards pressure on rents.
Then there is the safety. The low starting base means your asset is less likely to be affected by market falls and more likely to have growth when the market recovers.
As Nathan often notes, $1 million worth of property will double in value much faster if it’s spread across five $200,000 properties than one $1 million property. And five cheaper ones means you’re five times less exposed to risk.
Fundamentals of location
Of course, there are a lot of properties out there that are super cheap for a reason. They may be in towns that have been economically crippled by mines closing, or major employers leaving the area.
At a basic level, you want to make sure you buy in a relatively sought after location, with public transport and other infrastructure nearby, plus access to schools, hospitals, universities, employment diversity and other amenities.
It may be harder to find very cheap properties, but Nathan built his portfolio on city fringes and expanded it in regional centres, so it can be done. In fact, 2023 has seen properties going for in the $200,000s near the CBD in Perth and in the $300,000s in well populated parts of southwest Sydney.
To find deals like this and arm yourself with the knowledge and education you need, it’s best to engage professional help. We at B.Invested have access to property deals that you would otherwise never know existed, while Zinger Finance Mortage brokers can help match you with a mortgage structure that will help you achieve your goals. The right accountants, solicitors, financial advisors and property managers are all key parts of the property journey.
Once you’ve found the location and property of your choice, the next key part of a strategy is whether to pay interest only (IO) or principal and interest (PI) on the investment loan. Paying interest only for the first 3 or 5 years is the most popular choice. This strategy means you are more likely to achieve positive cashflow off the bat. You will have more cash to pour into other investments and can keep your growth momentum ticking along.
Over time, you can raise your asking rent each year and hopefully, when it comes time to begin paying down the principal, the rent can still take care of the costs. You then have an asset paying itself off that will one day be delivering you an unencumbered passive income.