3 Golden rules of property investing
Written by David Lennox
I developed these rules of property investing on the sidelines of kids sport.
I spend hours watching my kids play sport. This summer it is swimming and cricket. Having played cricket myself, my wife Donna has granted me the varying joys of long hot Saturdays watching games around the inner west of Sydney…
Standing on the sidelines gives parents lots of time to talk. The talk starts about kids, but cricket goes for a really long time!! So talk does turn to work. Polite questions I get are:
- ‘What do you do?’
- ‘How is the market treating you?’
- ‘Where are rates heading?’
Having spent 1,000’s of hours talking to clients, I have a habit of answering their first question and then ‘turning the table’ to ask them about their experiences with property. Interest rates are important (but a bit dull), but property investing is fun and interesting for both parties!!
Barriers to property investing
Once the conversation flows I ask them about their thoughts on property investing – not to spruik business, but I like to hear what people are thinking. The people I am talking to are much like me! They have owned a property for 5+ years, have decent incomes, and are aspirational about the financial future they want to provide for themselves and their kids.
These are the main barriers that parents with young children have:
- The property market is too hot
- We don’t have enough equity
- Cash flow is tight
- We need to save more cash for another deposit
Some of these points could well be true for some people and property investing is not for everyone, however, my job is to show people that some things are easier than they appear.
Rule #1 – do not wait to save a deposit
This could take years and may not ever happen. Very few Australians save $50,000 in 3 years whilst paying a mortgage and running a busy household. Also, that money is working far better against their home loan that putting in towards your investment property.
A good finance broker will show homeowners how to minimise or eliminate ANY cash contribution from you. As a rule of thumb we encourage investors to:
- Borrow 90% against the investment property – this involves Lenders Mortgage Insurance – but this has been wrongly painted as an evil monster. It can actually be shown to be a property investor’s friend
- Borrow 10% plus costs against your home
Rule #2 – expand your property search
Maybe my home town, Sydney, has had a hot run and might be out of some people’s price range – some people simply don’t want to pay $600,000 for a 1 bedroom unit in Bondi in an old block.
So why not bring other good areas into your property investment view? Maybe there are very big reasons why other parts of Australia might take their turn on the growth curve.
There are lots of factors to consider when deciding on a location for your investment property – population flow, infrastructure projects, existing supply, etc.
Many people have been scared of buying interstate as they feel they are too far away and they lose control. Getting around the country is far cheaper and communications are so strong that these fears are almost completely eliminated. We have many investors with interstate properties and they manage things just fine.
Rule #3 – the impact on your cash flow is not as bad as you think
The words ‘negative gearing’ receives a lot of attention. People tend to roll their eyes when they hear the term. It is a really easy thing to show people and once they understand the impact it has on their CASH FLOW, then they have taken a very important step towards buying their first investment property.
There are loads more tips and tricks, but from my hours on the sidelines, these ones are the most effective barrier-breakers.
About the writer: Dave founded Vision with Matt Ivers in 2000. He oversees the strategic direction of Vision Property & Finance and ensures that systems are in place to support mortgage brokers and the admin team. He has nearly 25 years experience in the mortgage broker and finance business and is a trusted credit advisor to hundreds of happy customers. Make contact with Dave at email@example.com