Ever wonder how people can save up just one deposit but end up going on to buy multiple properties?

We have the answer! But first…

Buying an investment property and growing a portfolio that is going to generate long-term wealth is a discipline of business. In basic terms, this means you have to have a clear understanding of how you’re going to maximise your profits.

Because of this, every investor needs to be able to develop a cash on cash strategy to help bank roll their property endeavours to ensure they have a functional and profitable business model.

THE CASH ON CASH FORMULA

When buying real estate, you need to find a deposit, which usually isn’t provided by a bank or lender and generally has to come from your own savings.

For a property transaction, it can be anywhere between five and 30 per cent of the loan amount. The deposit is, essentially, your capital and it’s never wise to invest capital unless you’re sure you will get results.

The formula that’s used to measure the likely performance of your deposit is known as cash on cash return.

THE CASH YOU PUT IN…

Essentially, these monetary returns are the fundamental instrument to building a successful property portfolio.

So many property investors are blind to this concept and how it works. To be completely honest, when I purchased my first place, I too was unaware and ended up paying the ultimate price. You see, I bought a property with my life savings and injected $30,000 into the market that I couldn’t afford to lose. When the market didn’t grow, I was unable to get that capital back in the form of equity. As you can imagine this was a tough lesson to learn and one you want to avoid.

Seasoned investors measure cash on cash returns in 12 month increments.

THE CASH YOU GET OUT…

For example, if you were to put $30,000 in the market, accumulate the asset and achieve growth over twelve months to gain a further $30,000, this is considered to be a 100 per cent cash on cash return.

To put even more simply, if you had $30,000 in the bank and at the end of 12 months you had your original $30,000 plus another $30,000, you would have a pretty good deal.

Cash on cash is the same principle, only it’s achieved through the property market. It allows you to secure and retain your asset, but still have a readily available deposit to fund a new investment.

Return on capital is the true cornerstone of advancement. Never buy a property as an investment if you cannot get a high cash on cash result. Cash is king and recycling more of it allows you to re- invest.

BANKROLLING YOUR CASH ON CASH

So how do you stack the deck to ensure you’re going to end up in a cash on cash position to be able to continue to build a strong performing property portfolio?

You need a good understanding of real estate as an investment.

Real estate is one of the only assets that works for you while you’re sleeping. Value of real estate rises in either capital growth or rental growth all day, every day, without any input from you, meaning all you have to do is sit back and watch your bricks and mortar appreciate!

However, it’s not true that you can simply snap up any old property and expect it to have great capital growth. In 2021 and beyond you will have to buy real estate based on a variety of factors such as location and liveability.

LEARN THE ESSENTIAL PROPERTY INVESTOR BASICS

Staying up to date with current market trends and predictions will be key to making sound and sustainable investing decisions that will offer long-term gains in an uncertain and changing future.

Get ahead of the game and arm yourself with the tools and resources to help you thrive as a property investor. We are offering a free a property investing seminar for people serious about learning how they can create a future of security and freedom through the vehicle of real estate.

Don’t leave it to chance. Discover the most important real estate buying fundamentals today.

Register now for the free property investor webinar.

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