Buy right, retire Rich

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Can you be a property investor on an income of $70K? You bet you can, just by following a simple plan of action

Hari Yellina

At the outset, I would like to mention that this article is for those who want to become wealthy by property investing only.

Wealth is not determined by how much you earn, it is by how wisely you invest for the future. I know people that earn $200,000 per year and all they have been able to acquire over period of 10-15 years was one property, which is to live in, and owing 74 per cent loan on the house.

As per the ATO, 80 per cent of the investors who claim deduction on rental property are earning less than $80,000 a year. At any point in time there are 1 million properties on the Australian market for sale, of which 5 per cent are investment grade properties. Now, please understand the difference between investment grade and normal grade properties. Investment grade properties tick all the boxes for future growth regardless of the market conditions.

According to research data, migrants are four times more likely to be wealthy than people who are born in Australia. Just by migrating to Australia, your chances are increased by four times to be wealthy. If you are reading this article now, it means you have what it takes to be wealthy and the right mindset to be in 1 per cent who would like to retire wealthy.

So, here we go.

 

Can I be a successful property investor on an income of $70K?

Yes you can.

It is quite simple to be a property investor.

Save a deposit of 5 per cent of the property value and additional 7 per cent to cover your costs for the property transactions. If the fiscal discipline of saving is not possible, alternatively, borrow it from your parents to come up with the first 5 per cent of the property value. Remember, regardless of how much you earn, you will still need a deposit to be paid for the property investment.

South Asian communities might have acquired some type of commodity for a long period of time such as gold or silver. To come up with the initial deposit consider selling this dead investment. Why is gold a dead investment, you may ask: Well, unless we are living in country like Zimbabwe where the inflation can be 1000-1,000,000 per cent a year, South Asian countries, which didn’t peg their currencies with the American dollar, will need some gold investment for the currency fluctuations. This is not for Australians or people who have their money in Australian dollars.

Let’s say you are about to purchase a property for $400K. That means you will need $20K for the deposit and $25K for the transaction costs.

Now, if you want to be a property investor, you must treat your investment just like a businessman would treat his/her business. Think like a real business man. RENT a property and buy your first investment property for rental.

Continuing from the above example whereby the value of the purchased property is $400K. Converting this into an investment property you can expect an estimated rent of $19,800 per annum (or $1,650 per month or $380 per week). Banks will add this to your income for serviceability. Now your $70,000 income will become $89,8000 due to investment purposes. Like this, there are other tax benefits and deprecation benefits applicable which will boost up your income.

You need to make a few changes, such as: If you are single, you can live in a shared accommodation or if you are married, you can rent in a single bedroom unit for a while till you have become wealthy enough to live a “Bondi Beach” or “Toorak” lookalike lifestyle.

 

Let’s get started for the brighter and wealthier future.

If you are one of so many who would like to rent an expensive house or buy a large house for living in during your initial stages of your wealth journey, I am afraid to say, you will fail in your wealth creation.

Buying a property to live in is a great hindrance to property success, unless you are a cashed up investor.

The Australia Housing and Urban Research Institute (AHURI) found that 22 per cent of Australians who get involved in property investment sell up in the first year or so, and about half of those who started down the property path sold their investment in the first five years. Of those who continue investing in real estate, less than 10 per cent own more than two properties and less than one in 200 own 6 or more properties.

Just buying one or two properties won’t make you a rich or a property investor. If you are thinking of buying one investment and planning to be very rich property investor, you might as well, just buy a property to live in and move on. This article is to buy as many properties as we can.

How to go about it: Save a deposit for house loan; Apply for a pre-approval for an investment loan (not for house to live-in); Buy an investment grade property; Let the property grow in value for next 2 -3 years (remember wealth journey is about 30 years); Refinance the property against the appraised equity, tap into the equity; Restart from Step 2 – Step 5.

 

When is the best time to enter the market?

As soon as you can afford it. Forget what the markets are saying and doing. Start when you are ready.

Wealth journey is a 30-year game, whereby the first 10 years are the hardest, due to the learning curve and the emotional stability required to succeed.

 

One bed room apartments: Are they good purchases?

In the past Australians shied away from one bedroom apartments and they have always gone for big block of lands and houses. Time has really changed. The Australian Bureau of Statistics (ABS) predicts single households will increase to 1.7 million in 20 years. ABS also predicts by 2031, couples without kids will outpace, couple with kids.

One bedroom apartments less than 50 sq m is a big NO. Banks don’t like them at all. It will be hard to get any loan on them or you will fork out at least 40 per cent of the valuations and they are very hard to sell.

One bedroom apartments or units in well south out location like Malvern, Kooyong , Seddon, Yarraville are still ok as they will give you a good hold into property investment. If you would like to buy one bedroom apartments, 10 km radius of the CBD are favoured.

Never buy apartments, especially one bedders in outer suburbs in regional locations as they might be tenanted, but capital growth can be a big problem. Wealth creation is about capital growth, not just the cash flow (rents).

 

Identify your bad investments and slowly get rid of them.

We have 2 bed room unit in country side. We would like to get rid of it for the same price we got it, 7 years ago. So, if we have few bad apples in our basket. Better to get rid of them as quickly as we can.

One bedroom or two bedroom, it has to be spacious.

 

Where are the good spots for units?

Right now in the west — you can get good value for Units in West Footscray, Seddon, Yarraville, Williamstown and New Port.

South East has Caufield, East Caufield, Malvern, Armadale, Kooyong, Richmond, Hawthron, Kew.

In the North, try Brunswick, Collingwood, East Brunswick, Coburg, Preston.

Buy in older style apartments, low rise apartments. Eighties and nineties stock will be good, so stay away from brand new high-rise apartment as the land to asset ratio is too little and off-the-plan properties are already priced very high, whereby the builder has included the 10 years worth of capital growth into the sale price of the apartments.

 

How do you determine a good spot for investment purposes?

Buy properties in capital cities – Sydney, Melbourne, Brisbane, and Perth. I would recommend our readers concentrate on Sydney or Melbourne. Try to invest in property in a 10-15 km radius of the city.

Once you have selected your city and location close to CBD look out for amenities like transport, cafes and shopping centres which play a major role. People like to live close to transport and would like to be surrounded by the cafe culture. Closer to schools can play a good part.

 

Is it a good idea to fix the interest rate when one gets a loan?

If you would like peace of mind, you can always lock in the interest rates. Fixed interest rates have always been higher than the variable interest rate. Due to fixed interest rates being higher than the variable interest rate, it is not in the best interest as an investor to lock in interest rates. You will be better off not locking in. Interest rate will be low for a quite some time.

If you want to upgrade or sell the property, fixed rates are not flexible. Hence selling an investment property on a lock interest rate will result in higher breaking fees and there is no flexibility of changing the loan for a better interest rate in future.