Property investment is one of the most popular routes to financial independence. But you can’t expect the road to building wealth in real estate to be a short one. Starting out on your first venture into property investment can be scary and overwhelming. Probably the most confusing and frightening part is not knowing where to start. You might find yourself thinking, “How am I ever going to afford a desirable property?”
Well, most successful real estate investors have been where you’re at. Here are a few lessons that will help you get started with property investment.
So, let’s say you decide to begin your real estate journey by learning about a piece or property you know well. You walk around your parents’ house, take a look at its features, and ask them about the market price. They give you a big number, or at least relative to what you’re used to dealing with. That might prompt you to think, “How am I going to put together that much money to buy a house?”
Don’t despair and don’t give up. The answer is: You don’t have to get hold of that much money. You shouldn’t plan on buying a big house to start with. In fact, you should preferably start by looking at something on the low end of the scale.
All you need to do in the beginning is to buy a property. You’re looking for cheap one-bedroom and studio apartments, maybe a rundown house. The trick here is to get the property for as cheap as possible. Look in the remote parts of your city or town. It’s possible to find ridiculously good deals on the outskirts of town.
The goal here is to buy it for below market value and use a renovation strategy. This means renovating it for just enough money to get the highest possible return in a short period of time.
Now, it’s important that you consider the basics. If there are problems with a house’s foundation or if the roof is leaking, you’re going to want to steer clear. Foundation and roof repairs will set you back a lot for little return. Since most buyers expect a working roof and foundation, there’s no “wow” factor here.
The sinking fund is something that can help you to save a lot of money. This is a fund set up at an apartment complex that all apartment owners pay into over the years. Its purpose is to take care of the common areas, like gardens and stairwells.
To take advantage of the sinking fund, the first things you do is buy a cheap unit that’s part of a block of units. It’s important that you avoid large blocks containing several hundred units. Your target is six to eight units, tops. Find and buy that cheap property and start renovating.
With the purchase of a unit, you’ll become part of the body corporate. You’ll get to attend meetings and discuss important things related to the block and common areas. You can suggest a new renovation or two in one of those meetings. Aim for something big that would significantly increase the property’s value – a new external paint job, for example. If you’re able to persuade the other owners to go along, the money for these renovations will come out of the sinking fund.
You’ll be using everyone’s money to improve the value of the complex as a whole, and by extension, your unit.
If you want to get into real estate investment, you need to come up with enough money to at least pay the deposit and other purchasing costs. You can take out a mortgage for the rest. But you may not qualify for a mortgage if you’re having problems coming up with the deposit in the first place.
In this scenario, you can consider forming a joint venture. Asking your parents to go in with you may be a good idea. Even so, your aim is still to save as much money as you can.
For instance, if you buy a house and renovate it, you can live there, perhaps in one of the rooms, and rent out the rest. Your living expenses will be paid, assuming the rental can cover the monthly outgoings (including mortgage payments).
When buying your first property, you’re going to have to make a major decision. Should you make it your PPR (Principal Private Residence) or an investment property? Unfortunately, there is no definitive “right” answer here. This choice depends on various factors.
If you choose to live there, you can save the housing costs of buying or renting another property to live in. On the other hand, your PPR won’t give you any income. If you buy the property as an investment property, you can rent it out for income. But then you’re going to have to deal with all the expenses of living elsewhere.
As a rule of thumb, if you currently have a lower-paying job, consider getting an investment property. You can use the income from the property for loan servicing, amongst other things. If your wages are heftier, consider going with the PPR.
Whatever you’re doing, always stay focused on manufacturing growth. Always look for ways to increase the property value, whether it’s a PPR or an investment property.
You should know that property investment involves a lot of learning as you go. Of course, books, seminars, and even YouTube videos can help you a lot. But you’ll be doing most of your learning along the way.
It’s important that you curb your expectations in the beginning. Always look to save money. Make the most of an apartment block’s sinking fund, whether you’re buying a PPR or an investment property. In addition, you might consider a joint venture if you can find a suitable party who would put up the money, while you contribute your labour and expertise.