Property investment works to make you wealthier because you are borrowing to purchase an appreciating asset. The amount of debt decreases as you repay the loan, but the value of the property always increases over time. The difference between the rising property value and the decreasing debt makes you wealthier. This is the simplest way to get rich, but it takes time. If you start young and are prepared to wait 20 years you will become wealthy.
There’s no point simply owning a family home as you will only be keeping up with the property market. You have to have investment property to get ahead in life. As soon as you can afford to cover the shortfall of the rent over the property costs, buy an investment property.
Running a Business to Make Money
The best business is to create a product or service that is in demand. But how do you create a product or service that hasn’t already been created.
How long would the product or service sell before it became redundant, out of date or uncompetitive. As soon as you release a new product or service, other entrepreneurs are going to copy you and sell a similar product or service.
If it’s a new product or service, there may be no demand so you would need to create the demand. However, that can lead to expensive advertising campaigns. How would you market it without spending all the profits.
You need to have a very good profit margin on the product or service.
You would need to sell many items per day to earn enough money.
Setting up a physical business is difficult. You need a shop, inventory, displays, staff etc. all before you make one sale. One-off shops are virtually over these days. Most shops in the major shopping centers are franchised stores, owned by large retail chains or listed corporates on the stock market.
How do you compete against those large, powerful businesses?
Property Investment – the Best Way to Make Money
The majority of the world’s richest people made their money in real estate.
Sure, many will tell you they started successful businesses or invented new products and services but once they made their initial fortunes, they invested in property to secure their financial position and grow their wealth.
Businesses, products and services come and go.
Real Estate is permanent.
Everybody has to have somewhere to live and work, without exception. Real Estate in major cities near work, schools, hospitals, other facilities is a limited resource that will always be in demand.
New technology will keep changing. Investing in the latest computer, phone, software, TV or whatever is a waste of time and money. All our current technology is interim technology. It has to change for human civilization to evolve. If you had a technology company, you would have to continually upgrade your products or services to maintain your market position.
Property investment is easy.
The world’s population will only grow larger and demand more developed residential property.
As a result, property demand will increase and continue to grow in value.
Purchase property, lease it to tenants to pay the costs. Keep the property long-term and reap the rewards.
Property Investment Debt
Property investment debt is good debt because you are borrowing to purchase an appreciating asset. The amount of debt decreases over time as you repay the loan, but the value of the property increases. The difference between the rising property value and the decreasing debt increases making you wealthier. This is the simplest way to get rich, but it takes time. You must start young and wait 20 years to be wealthy when you are older.
Example
An investor purchases an investment property for $400,000 and borrows $320,000 or 80% of the value of the property. The investor’s cash deposit is 20% of the property value, $80,000.
The property is leased to tenants. The rent helps pay the mortgage and property expenses.
Twenty years later, after two property booms, the property value is $750,000. The mortgage debt has been repaid in full. The original investor’s cash investment of $80,000 has grown to $750,000. The investor had to cover the shortfall between the rent and tax refunds in the first five years of the investment. However, every year the rent was increased to cover more of the interest and property expenses. Eventually, the increased rent would cover all the property’s costs making the investment pay for itself.
Bad Debt
Borrowing money on appreciating assets is good, borrowing on anything else is bad.
Never borrow to buy a car, furniture, clothes or anything that does not appreciate in value. You not only pay the purchase price for the goods but also interest. The total price you pay is the original purchase price plus interest and fees. So you are paying too much for the goods. And the goods are depreciating in value over time.
Let’s look at a motor vehicle. If you purchase a new car for $50,000 and borrow $40,000 the loan interest, say 10% per annum, will be $4,000 per year. On a 5-year car loan you might pay $20,000 interest. The total purchase price is $50,000 plus $20,000, giving $70,000. You effectively have paid $70,000 for a five-year-old car that’ now worth at lot less than $50,000. It may be worth $25,000 to $30,000 now.
When you purchase any depreciating asset, you are paying interest and losing value of the asset. This is a quick way to poverty. Later in life you will have no assets and no savings.
No other business investment pays for itself on autopilot like property.
How to Buy a Property Investment
Never Pay the Asking Price
Research property by looking at the selling prices, not the asking or listing prices.
There is always a difference, sometimes considerable difference, between the property listing price and the selling price. A 5% to 10% discount is normal in most markets.
The majority of property owners only own one property – the home they live in.
And they usually love their home and think it is their castle. As a result, they believe that their home is better than other homes in the neighborhood and should be sold for a higher price than other homes. When a homeowner lists their property usually, they don’t do enough research into the current state of the market, sales history and competition in the area, net rental returns, the age & condition of their home compared to others and other factors that determine the current market value of their home.
When a vendor lists a property, they usually overprice the property.
Always negotiate a lower settlement price. Try a 5% to 10% discount.
Never inspect a property that has just been listed for sale
The owner will not be in a hurry to sell as the property has just been listed. Always wait at least a few weeks before inspecting a property because you don’t want to show too much interest in the property, and you won’t be able to make an offer lower than the asking price.
Never show too much interest in a property when inspecting it
Don’t get emotional when inspecting property. Try to keep you reaction to a minimum and never tell the real estate agent you love the property and must have it. Otherwise, you will not be able to make an offer and negotiate a lower settlement price.
When to Sell Your Property Investment
Never sell your investment property.
The cost of buying and selling property is high. There is transfer duty tax and legal fees when you purchase real estate. When you sell there is real estate agent selling fees, legal fees and capital gains tax.
Usually, when you keep a property long-term it becomes irreplaceable. If it’s a house, you may not be able to buy land and build a house in the same location again. Sometimes apartments and townhouses are also not easy to replace in an area.
Keep the property. If you need money, for whatever reason, you can borrow against the property at any time.
Property Investment Strategies
Purchase your retirement home now as an investment property and rent until you are ready to retire. You can renovate it after you move in. Plan your life for the next 5, 10, 15, 20 years
Move overseas to a less expensive country for retirement. Many people in first world countries (USA, Canada, UK, Australia, etc.) move to Mexico, Caribbean, Asia, Southern Europe (Spain, Italy, Greece etc.) for retirement. The cost of property and living is cheaper, and they don’t need to work.
When you are young, buy an investment property as your first property and live with your parents longer. If you think your parents will kick you out of their home if they know you own a property, don’t tell them you have bought an investment property.
Buy a large home with many bedrooms and bathrooms and rent each room to students or flat mates. This returns more rent than simply leasing out the whole property and you get to live there too. Effectively, it’s like you are only paying student room rent but you own the whole house.
Buy a home and convert the basement (or part of the house) to a separate unit that can be rented. This also adds value to the house.
Buy an investment property with your brothers/sisters/friends. Create a partnership agreement or a family trust.
Combine your brothers/sisters/friends superannuation/pension funds in one fund and buy investment property. Usually pension funds cannot borrow money, so you would need to combine resources to purchase property.
Buy a holiday home investment at a beach resort or holiday destination. The high rent over the summer will pay for the holding costs of the property.
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