How to Become a Property Investor
When most people think of investing, one of the first ideas that come to mind is property. Investing in real estate has become known as lucrative due to the empires which have grown within the industry. Unfortunately, most people who recognise the potential of real estate investment do not know much about investing and therefore fail. This is why it is important to educate yourself first. Here are a few pointers to get you started.
Your first property
The first big “investment” made in most people’s lives is the first home which they buy. The purchase is usually accompanied by a lump sum deposit and a twenty to thirty year mortgage on the property. People mistakenly refer to their home as an asset. It is in fact a liability.
In order to understand this, we need to understand the difference between an asset and a liability. Paraphrasing the words of business guru Robert Kiyosaki, an asset is something which puts money into your pocket whereas a liability is something which takes money out of your pocket.
Purchasing a home under ordinary circumstances, buyers are likely to pay up to three times the value of the property back to the bank after interest has been factored in and will be liable for rates, taxes, levies, utilities, insurance and maintenance on the property. In this case, the home constantly takes money out of the homeowner’s pocket, rather than putting money in. Therefore, a home is a liability.
If you want to think like an investor, you’ll want to minimise spending and increase the potential income from your belongings. Let’s look at a few ways we can do this.
Expandability and multipurpose properties
Look for properties with income earning potential. The growing trend in suburbia is homes with garden cottages and flats. Look to buy a property with additional space you can rent out for income. This income may not go directly into your pocket but it will reduce your expenses by covering your bond repayment or other expenses.
Another consideration is the expandability of the property. If you are buying a house, you need to look at whether or not you can expand the property in future. With time, circumstances may change and you may need more space. Rather than buy another bigger property, you can simply expand the current one by adding a few rooms or making modifications and thus also increasing the property value. This will require enough back yard space and a solid building foundation. Concerning flats and cottages, if the property has an existing garage or space that can be converted into a rentable living area, you can make those alterations in order to start earning and increasing the value of the estate.
If you run a small business, consider moving your offices to the property. An existing flat or cottage can be used as office space or you can build offices as required. This will save you time and money that would have otherwise been spent on commuting and rentals.
Repossessed and distressed properties
Foreclosure rates are high due to privatisation within the property industry. Although, heartbreaking to anyone affected, it is a way for investors to make money. Repossessed homes are auctioned off to cover the outstanding loan amount and fees owed to the bank. In many cases this amount is lower than the actual value of the property and a buyer can sell the property for a profit. You can find a list of repossessed properties from banks and auctioneering companies in newspapers and at court houses.
Another way of making money but helping people at the same time is to seek out distressed properties. Such properties need to be sold as soon as possible for the owners to secure themselves financially or because of circumstances such as sellers having to leave the country. These sellers are desperate because they can no longer afford to pay the bond or expenses and need to make a sale quickly. They are often willing to sell at a lower price just to get out faster. Finding these sellers may be more difficult but it is a way to help people so they don’t get into trouble rather than benefiting from their loss. You can find out about these properties by seeking information from real estate agencies, bank home loan departments and your local sheriff’s office.
Do your homework
Make an informed decision. A house may look good but what are the trends in the neighbourhood? Are rental and purchase prices rising or falling? Are there any new developments? What is the crime rate in the area? All these factors need to be taken into consideration. A good way to find out about an area you are not familiar with is to rent nearby. You can even sign a rent to purchase offer on the property you are interested in. If you are satisfied with the property and area after having lived there for several months, you can go ahead with the purchase.
Beware of maintenance nightmares
Sometimes there are hidden gems with loads of potential to tap into. These can include vacant main road properties or beautiful but neglected houses in good neighbourhoods. These properties can often make a good profit after they have been fixed up and revamped. However, beware of lost causes. Sometimes you can envision what a property could look like but there are simply too many obstacles. Before you jump in and act on your vision, you need to find out if the numbers add up.
Realise that property is generally a long-term investment. You will not get rich quick. Planning and thinking ahead from the very first property you buy will make you a steady success.
You also need to familiarise yourself with the art of the architectural plan. You don’t need to become a design expert but you need a basic understanding of what is going on.
Investing is a numbers game
Your numbers are crucial. You need to know how much a property will cost you. Going in blindfolded is a one-way path to failure and losing a lot of money. Figures never lie. It is essential to understand your costs, the potential cashflow from rentals as well as the potential capital gain or loss on the property value.
If you have neither the cash flow nor good credit to begin investing, there is a way around this. Find a partner. If you do not have a willing friend who can partner with you and supply the funds necessary so that you can split the profit, there are other places you can venture. There are real estate companies, developers and cash investors looking for new opportunities. You can find them by doing an online search, reading the local newspaper classifieds or joining groups of entrepreneurs or investors.
You will also need partners in fields you are not familiar with such as construction, architecture and design. Building the right team will ensure that all the required skills are brought into your future investment portfolio and every party involved can benefit and profit from working together and leveraging off each other’s talents.
In order to convince partners to join you, the numbers and paperwork must be detailed and up to date. People will be willing to put their money into an investment if they can see that you know what you are doing and they trust you. Cash investors are usually people who know what a good investment looks like but lack the time to look for new investments. You invest the time and effort, they contribute the money. Then, as you gain financial success, you can play the other role and invest financially without having to do the dirty work.
Realise that you will fail and that failure is a part of learning. It is what you pay to gain skills and experience. In order to reduce your personal learning curve, learn from others. Seek the right resources. Go to seminars, attend events, watch informational DVDs and read the books. Two recommended reads include Nothing Down by Robert Allen and The One Minute Millionaire by Robert Allen and Mark V. Hansen. Although most of the advice out there is based on the U.S. Market, much of it is also applicable to other countries. Educating yourself is the first step to learn how to invest your time, efforts and money into properties and steadily grow your property portfolio.
Real estate is a popular form of investment but it requires hard work and perseverance. Stay positive and keep working on your goals. Like any form investment, you need to wisely build your portfolio in order to get to the point where your efforts, money and acquired assets work for you.
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