It would really help to decide on the reason, or reasons, why you would want to become a real estate investor. It will be because of these reasons that you will stick with your decision throughout the long years ahead.
I say the long years because this is not a get rich scheme, but a great long term investment strategy, which has withstood the test of time, Point number 1 is:
Investors will find their own personal motivation but in the main they will come out of the following five areas,
- Create Wealth. This is probably the number one reason, but the sad fact is most people don’t get rich because they don’t have a plan, and you know what they say, “If you fail to plan, you plan to fail.” Over 80% of Australians are retiring on less than $300 a week at the moment. Could you or would you like to retire on this amount? Government pensions may not even exist 20 years from now, but if they do, there’s a fair chance it would only be enough for a very meagre existence.
- Recycle Taxation. Ask yourself, did I pay too much tax last year? There is a legitimate way in which you can reduce the amount of tax you pay and at the same time use this extra income to offset the weekly shortfalls on your investments. (Tax is covered in more details under “The Financial Elements”)
- Security. Of the many hundreds of investors we have spoken with, another element of motivation which is often mentioned is the “Security Issue”. Most investors are investing for the financial security, not only theirs but that of their family and loved ones, so their children/grandchildren will be in a better position than they were. Investors have told me outright, “it may not be me who will ultimately benefit from these investments, but it will be my family”.
- Retire Younger. Being wealthy enough to be able to retire ( if you choose to ) motivates a lot of us. Imagine, not having to go to work, unless you wanted to! Think, if the family home was paid off, how much would you need each week in today’s dollars to live comfortably? $800-$1200 per week? If this is the case then you’ll need 2 or 3 freehold investment properties by the date you set for your retirement goal, ie 50, 55 or 60 years. One particular definition of wealth is this one, “The number of weeks you can survive, without physically working and still maintain your standard of living.” So if you need $600 per week and you have $30,000 saved then 50 weeks is the answer. You will be in the position to retire when your real estate investments can produce this $600 per week for you.
- Control. More and more the control factor keeps coming up. People would prefer to have hands on control of their investments rather than a faceless board of Directors somewhere dictating what happens to your funds and when and if you can liquidate them. Real estate as an investment vehicle provides you with an enormous amount of personal control; again should you choose to use it.
Ask yourself, what would financial independence mean to me? What would I do if I never had to worry about money again? Would you give up or cut down on work? Travel, pursue more pleasurable pastimes, buy that boat, play golf three times a week? It’s up to you, what would you do?
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2. Why would you choose Real Estate as an Investment vehicle?
There is a combination of reasons and they all have to be looked at in totality. Investing is like a recipe for a cake, you need all the ingredients to be combined in the right measure to make a perfect finished product, one or two missing or mis-measured ingredients and you would not get the same result. What gives real estate its own individual flavour is: HIGH CAPITAL GROWTH.
- Real Estate enjoys a capital growth which even on its own constitutes a good return on investment, but this growth continues to be compounded each year. For example, if a $100,000 property goes up 10% growth the $110,000 goes up $11,000 to $121,000. Another 10% growth= $12,100 and so on, compounding and compounding so your investment property could double in value every 7, 8 or 9 years. We measure this using the Rule of 72: We can supply you with the capital growth figure on each suburb over the past 15 years. If this would be of assistance or value to you please just ask us.
- THE SECURITY FACTOR. Lending institutions the world over use real estate as the principle security for their loans. This is because real estate has proven itself as the safest long term investment product there is. For this reason the banks will advance funds against the security of real estate 70%, 80%, 90%, 100% and sometimes more if you have other real estate for use as extra security. Because Real Estate is the best form of security the bank can have you are going to find that the money you need to grow your portfolio of investment properties will become available to you because of time and the compounding growth of your investments.
- READILY TURNED INTO CASH. It could happen sometime that a need arises where you want to liquidate or get some cash for something, a wedding, bad health, loss of employment, or some other cash requirement. It is then that you will appreciate the fact that you can turn one or two of your investments back into cash, by putting the property on the market. Usually you would have the money in your bank account within 2 or 3 months. The point here is, that unlike some investments, which are locked away for years, like term deposits or superannuation, real estate can be easily converted back to cash by just selling it on the open market.
- TAX ADVANTAGES. It is easier to purchase an investment property in Australia than it is your own family home. When you buy your own family home. When you buy your own home, only you are paying those monthly mortgage payments. However with your investment property(ies) you take on two additional partners to help you meet those payments. That is the tenant who pays the majority and the tax man who pays some as well. You have to meet the shortfall but it’s a lot less than buying your own home. The government benefits by having you the private investor supply housing to Australian tenants. Let’s face it if you don’t the government has to, so that’s why they will gladly give you tax concessions, it’s cheaper for them to do it this way.
- INCOME. Imagine retiring with 3 or 4 freehold investment properties, producing weekly incomes for you. Its not dreaming, it can become a reality very easily by just having the plan and the commitment.
3. The financial Elements, putting them all together.
4. Terms I need to understand.
5. Where do I get the money for the deposit and shortfall?
6. What are my finance options?
7. Can we analyse each investment before choosing to proceed?
8. What risks are there? How do we minimise these?
9. What are the five basic rules for new investors?
10. Take action.