5 Tips for Building Wealth through Property Investing
What does financial freedom look like to you?
You could ask a hundred people this question and you’d get back perhaps a hundred different answers.
If, however, you were to dig deeper you’d discover that “control of my time” is the common theme.
To achieve true financial freedom you’ve got to:
- Think of investing in property as a business – set goals and create a plan to help you reach them
- Understand how to use leverage
- Structure your investment property portfolio to get you past one or two properties (hint: you need more than two properties to achieve financial freedom)
- Buy the right properties in the right location
- Know how to preserve your wealth
1. The business of investing in property
Perhaps you’ve never thought of buying investment property as a business, but it is.
It’s a way to make money, is it not?
So then, if it’s a business you’ve got to pay attention to it, not let it sit and stagnate.
Granted, investing in property is a long sum game, but that doesn’t mean you ignore your investments…you’ll pay attention to your yields, your expenses…anything and everything that has the potential to have an effect on your profits.
For example, you’ll:
- Put together a business plan that includes a detailed investment strategy
- Set up generous buffers to meet business expenses (e.g. improvements, repairs, rental vacancies, etc.)
- Put together a team of professionals who can help your business grow, such as a good finance planner, a savvy broker and a highly reputable property management company.
- Find a way to organise your records
- Identify and establish business relationships with a collection of quality tradespeople whom you can call on when necessary.
Understanding leverage is key to managing your investment property portfolio. If you know what banks are looking for when they evaluate your loan application you’ll be in a position to make your financial profile as appealing as possible.
Some things that banks consider include:
- A solid employment history
- Savings account with aged funds
- Good credit
- A low debt to income ratio
- Property location (postcode)
- Market drivers (suburb yield, economy, population, demographics, etc.)
- Value of the property
- Dwelling size
- Housing density
- Exposure (e.g. the lender already has too much capital invested into a particular marketplace)
Note: If you’re getting lender’s insurance, mortgage insurers must also approve your loan application.
Following are a few things you can do to improve your ability to obtain leverage.
- Reduce your outstanding “bad” credit. Of course this means any credit card or personal loans you may have, as well as the mortgage on your personal place of residence.
- Sell off any underperforming properties and use the funds to beef up your existing buffers.
- If you’re not saving regularly, start saving now. Lenders want to see that you’re consistently saving over time.
3. Correctly structure your investment portfolio
An investment property structure simply refers to how you take ownership of the investment property.
Essentially there are four ways to hold title to a property:
Each of these types of ownership structures has benefits and risks, depending upon your particular situation and what you want to accomplish through investing in property.
Consult with a qualified legal professional who is experienced in property investing to determine which type of structure will suit your particular situation.
4. Buy the right properties in the right locations
While it’s important to find the right location to invest in property, it’s equally important to find the right property within a growth location to maximise your profits.
For example, if the area demographic prefers houses over units, which property type do you imagine would deliver the better result?
5. Preserve your wealth
While a great deal is said about building wealth, little attention is paid to maintaining it.
Choosing the right structure is only part of wealth preservation.
You’ll also need:
- The right insurances in place
- Adequate buffers
- A well-planned exit strategy to reduce your debt and minimise your tax
If you’re after more tips related to Property Investment, you should join us at our next Property Investor Night and meet with our wonderful Coaches. You’ll be able to ask them any question you want and it’s a free event! Book your seat here.
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When it comes to property investment there are some things you can never have enough of. Good tenants, reliable builders, a great relationship with your bank.
But more than anything what you need is good cash flow.
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Here are the top five ways you can ensure the cash keeps flowing, so you can keep your investment portfolio growing.
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