Investing in property can be a daunting task, especially if you are heavily dependent on a salary. But with the right mindset and strategy, real estate investments can pave the way for a secure financial future.
The COVID-19 pandemic has revealed how financially vulnerable many Australian workers are – especially those who count on nine to five jobs as their main source of income.
For Lloyd Edge, director and founder of Aus Property Professionals and author of a new book called Positively Geared, the pandemic was also a wake-up call for Australians to protect their finances from unexpected economic turmoil – and he believes investing in property is a good start.
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Edge says that anyone with the right mindset and strategy can achieve a financially stable future. He shares six tips on how to do this through solid real estate investments.
First, know your WHY
Edge says that for your real estate investments to grow, you need to have a clear vision for your management and a solid plan to make that vision a reality.
"You have to define your large-scale life goals for wealth creation," he says. “Ask yourself these questions: Where do you want to be in 10 to 15 years? What are your goals? Is it financial freedom, leaving an inheritance or providing private school education to your children? »
Edge says that it saddens him to see people spending many years working in nine to five jobs just to afford a house in a nice place, when in fact they can use this property to increase their wealth.
"You will need to build on this by purchasing other properties that have a clear goal and their own strategy for achieving that long-term goal and gaining financial freedom at the same time," he says. .
Determine your strategy
Edge says that successful investors know where, when and what to buy.
"What won't work for you is just buying property in one place and waiting for growth," he says. "You need to build equity in properties and generate cash flow to achieve your goals, rather than pouring all of your investment money into a single property that offers no substantial financial rewards for years to come up."
"You have to understand how each property will take you to the next property – that means the locations, prices, and ownership structures will vary greatly for each investment," says Edge.
Mitigating the risk
Edge also highlights the importance of a good location when buying a property. He advised investors to look for areas that have "all the fundamentals of good growth".
"Find properties near universities, hospitals and school catchment areas or areas with above-average median income for a city and with two household incomes on average," he says.
"This provides much better stability, because tenants are unable to pay in the event of job losses. Many people do not look at this avenue when they buy properties. »
Once you have secured your property, control the market yourself
Edge says that the "buy and keep" approach should be avoided at all costs.
"Instead, do something with the property that will increase its overall value and rental income, in order to speed up the growth process in any market," he said. "Make sure you buy something that you can subdivide and / or update, so that you can add value."
"Because, regardless of what the market is doing, you then created your own capital growth, and you can borrow against that increase in equity for your next investment."
Edge calls this investment strategy the "real estate triptych". The self-developed strategy is based on three regimes – organic capital growth, instant equity and positive cash flow – and is designed to provide real estate investors with a roadmap to success.
Positive gear and cash flow
Another thing to avoid is a negative gear, according to Edge.
"If you want to build a sustainable portfolio, having a negatively oriented portfolio and claiming the difference in tax is not a good strategy, despite its popularity in Australia," he says.
"The negative gear will keep you in a job forever." While passive income from your wallet will allow you to choose to get away from full-time work if you wish, as well as be able to afford all the other luxuries of life. »
Avoid overcapitalizing
Edge said investors should also be able to "build equity for short-term recovery."
It lists "buy below market value, buy from motivated sellers, find properties that need a little TLC, add value by way of subdivision or development, and buy multi-income properties' as a few strategies that have led to its success.
Edge believes that by following this advice, investors will be able to create a sustainable investment strategy that will lead to future financial freedom, regardless of their current financial situation.
"In summary, I think Australians need to focus on three" problems ":" growth "," expectation "," exit "," he said. "It means knowing which properties to buy and which strategy to use, how long to keep them, then when to sell them and when, so you can reach your ultimate goal."
