Asset rich, cash poor? No thanks!
There’s a common misconception that if you’re a property investor, you’re living on red beans and rice because you’re asset rich, but cash poor, and you have to wait decades to live the life you want.
Being a successful property investor does not mean being poor. Done right you will purchase real estate that provides cash flow through rent, equity and capital growth.
You’ll claim tax deductions and other benefits available to investors that put money back in your pocket on a regular basis.
But it is true that you need to know what you’re doing – or you could end up on that red bean diet, and no one wants that.
Avoid Real Estate That Drains Your Cash Flow
It’s a mistake that a lot of property investors can make. There’s a run-down, older property going cheap, and we think with a lick of paint we can turn it into the Taj Mahal and make some great rental income.
Wrong! Older properties that are losing functionality are going to cost you in maintenance and repairs. They’re literally going to suck the cash out of you.
They’re also going to cost you in time as the problems will keep coming, month after month, year after year, and you’re going to be on the phone with your agent or renter every five minutes.
Newer properties are less likely to be such a cash drain or time burden.
Build A Buffer
Things happen, circumstances change, stuff breaks. That’s life. But if you plan for it, then you won’t have your legs taken out from under you unexpectedly.
Having a buffer of around $5,000 for each of your investment properties will give you both peace of mind and an actual way out should something happen.
Equally, a personal buffer is essential to protect yourself against a sudden change in circumstance.
Work out your expenses per month – so food, mortgage etc – and try and get about four times that amount in your off-set account.
Having this personal buffer protects you and can be redrawn at any time.
Protect Your Buffer
If it all hits the fan and you have to use some of your buffer to get out of a financial hole, that’s fine. That’s why it’s there. But it’s vital you replace that money as soon as possible.
And this might be a time when a red bean and rice diet is called for. Cutting back on all unnecessary spending and trying to earn more money to replenish that buffer as quickly as possible could mean short-term sacrifices, but it’s for long-term and ongoing protection.
Spend From Renewable Income
Contrary to the ‘asset rich, cash poor’ myth surrounding property investors, you should be in a position to be able to spend and have fun with the rewards you’ve built.
Once you have your buffers set aside and two or three properties providing healthy rents and good growth, you should take a holiday, buy that dream car or splash a little cash around for fun. But again, it’s important you’re spending the right kind of money.
Spending money you get from your job on things that immediately de-value isn’t smart. But if you take your salary, put it into an asset like real estate which then creates money and wealth, not to mention tax deductions, you will then be able to spend your returns from that asset.
Remember real estate is one of the few asset classes that earns you money while you sleep, and through capital growth, rent etc it will continue to provide wealth.
Don’t Be A Poor Investor
No one wants to be a poor property investor. Find out how to make smart investment choices that help you achieve the life you want, faster, at one of our free seminars. You’ll be equipped with the tools, resources and support to thrive, and not fall behind on your path to financial freedom – whatever that may look like for you.
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Founder – Positive Real Estate