Investing in Property – What Is the Best Way to Buy Rental Property?

Investing in Property

What is the best way to buy rental property?

The question you need to ask yourself is – Am I buying this property as an investment?

Now this sounds like a pretty stupid question, right? But in reality, many people (myself included) have made a purchase decision on the basis that they love the “property” not the “investment.”

What do I mean? Well you have to stop and ask yourself do I really love investing in property or do I just love to own property. Many have purchased an “investment property” on the basis that they “liked” it, rather than because they had calculated it would provide a great return.

When investing in property you should always run your numbers through a property investment calculator before deciding whether to even look at a property, let alone buy it!

My first CBD apartment – aka “Investing in Property for Fools!”

I’d always wanted to own a piece of the CBD. Growing up as a kid I loved visiting the “city” to look at the skyscrapers and imagined coming here for work like my Dad did each morning. Sure, I was investing in property. I was investing my emotional security in a property location! So you can see quite clearly that it was an emotional, rather than a hard headed decision to buy a newly complete one bedroom unit back in the early 2000s. It was just something I’d always wanted to “have.”

I remember driving around the inner city with a well known property spruiker looking at projects he was involved with. Of course his level of involvement was as a master salesman. A unit became available for approximately $230k. As a young couple my wife and I discussed the pros and cons and I decided against the advice of my wife that this might not be such a great idea.

At the same time another unit had become available in the inner city block of apartments that I was currently living in. It was available at a similar price. My wife counselled me to consider this as an option. My “adviser” had discouraged me on the basis that I would be putting all me eggs in one basket. There was some truth to this advice so I followed my “dream” of an apartment in the “city”.

When I went to the office to sign the papers I remember being advised that the original unit was no longer available, but a different one on a higher floor was, at a higher price! I said OK, No problem, like we Aussies tend to do. Then I was presented with the option to purchase a “furniture package” for an extra $20k. This would “guarantee” a rental return of 8% to me for the first 2 years of my investment. I hadn’t previously considered this, but of course I said “Yes”and was told what a wise choice I had made. (Of course this made me feel good about myself!)

The truth was I bought the unit not on the basis of its potential financial return but its immediate emotional return. I never did end up living in it or even spending a single night there, although I’d often wander past and gaze up at my balcony and wonder how “cool” it would be to live here.

In fact the property was a complete drain on my bank balance due to the high costs associated with the common areas including pool and gym equipment. The rent never paid for the outgoings and I lived in hope that the price would go up so I could make a “paper” profit at least!

Now some time later I did end up selling the unit for around $300k, so it was far from a complete disaster. In the end I was very glad to sell and call it even. In reality the cost to me was an opportunity cost. What else could I have been doing with my money?

I looked recently for sales data on the city block in question and found a similar unit sold for $355k, approx. 10 years after my initial purchase. Currently in the inner city block I was living at, prices are over $650k. Remember that 10 years ago these properties were selling for approximately the same price. If I had listened more to my wife and less to my own emotion I might have ended up $300k better off!

What did I learn? I learned that whilst it’s great to listen to “advice”, be aware that sometimes advice might be just a little biased! I’ve learned to trust my own instincts more and weigh advice against what I already know to be true and reasonable. The reason I liked the apartment in my own block was that it was located well. It was quiet, had views, was close to city, walk to tram, bus and train and there was no high-rise in the vicinity. The area couldn’t be quickly re-developed and units added. In short, the amenity was desirable and there was not going to be any new properties added in the foreseeable future. This meant there was a cap on supply.

In the city here is not a cap on supply. There are numerous developments under construction at any given time. I’d be more than happy to live in many of them. But I wouldn’t buy then as an investment! Unless they were in a landmark building of some sort there is no scarcity value in them. They can be replaced easily.

If one of your neighbours wants to sell and needs to move quickly, guess what. They set the price for your unit. You have virtually no control over the market. No matter what you do to your own living space the whole value of the block will be determined by factors outside your control.

Investing in Property for cashflow or for growth?

Let’s be honest. Most of us are investing in property because we think that prices are very likely to go up! On the other hand we all know about “negative gearing”. In essence it means we can write of our “losses” on our investment against other area of income. I don’t disagree with the concept, we ought to be able to weigh our profits against our losses and pay tax on the net result. BUT, if all we own are “investments” that are make a “loss” and we’re offsetting that against a “gain” from our job, that’s not really smart investing is it?

Sometimes a property might be increasing in value at a greater rate than we could expect to make as a cash income from our investment. This is not always the case as you can see from my experience in the Melbourne CBD. But at what point does this cease to be a valid reason for deciding to invest of even “keep” and existing investment? Steve McKnight from PropertyInvesting.com once said something very illuminating at an event I attended. Basically he said we ought to do an audit of our property portfolio every year and re-assess whether we ought to hold or sell each property!

Seriously. I never thought I was going to sell anything – Ever!

Early on in my property journey I’d decided I was going to “Accumulate” property. Buy and never sell! That was my motto. Once I’d paid down the loan I would be sitting on a nest egg and having rent more than cover my outgoings.

But consider this! Real world example -

My unit in inner Melbourne right now would be worth about $650k and yet it might command a weekly rental of around $480. That’s about $25k rental annually.

The yield is therefore 25k/650k annually or 3.8% of the value.

Setting aside things like mortgage repayments, there are still fixed costs on any property – In my case they include for the last financial year:

Council Rates $820
Water $945
Insurance $302
Owners Corporation $1660
Agent fees $1815
Repairs $890
Total fixed expenses for the year $6430
This reduced the total income to ($25000-$6430)=$18570

Now my actual annual return is 18.5k/650k = 2.9%

Of course costs like Agent fees and Owners Corporation are not always applicable but they serve to show that in the real world the actual return can be a lot less than a simple headline figure.

If I include my interest costs (which still exist) I must deduct another ($150000*6%)=$9000 from my income.

This reduced the total Real income to ($18570-9000)=$9570

Now my actual annual return on the asset value is 9.5k/650k =1.5%

Should I Sell this property?

There is no right or wrong answer. Sometimes I say yes and my wife says NO! Sometimes I say No and my wife says NO! Do you see a pattern here?

There is no right answer because everyone has different needs, has different skills and is coming from a different base and most importantly – We all want different things! It depends on your circumstances, your family situation, the personalities of you or your partner and your goals in life.

If our main goal in life was to increase our cash on cash return or all our assets then it would be a no brainer to sell up and invest elsewhere (assuming I could expect a greater return than 1.5%!) Having said all that I still love property, and I love investing in property.

It’s quite possible to love the idea of property without loving investing in property. In fact most property that you’ll “love” will probably be pretty darn useless as an investment. Don’t be confused.

Would I choose to invest $650k of my actual cash in this investment right now of it were available for sale? Probably not! – So why am I still keeping it? I love it and plan to live in it.

This is a question only YOU need to ask yourself and answer on a case by case basis. I’ve looked long and hard at my own situation and decided to keep for now based on family reasons, NOT investing reasons.

Review every property every year

For every investment I currently hold I review the property and make a decision based on the real numbers, not a fantasy of what I’d like to see happen.

That’s why I decided to sell my apartment in the Melbourne CBD.
It was “Costing” my money to hold, and NOT growing in value anything like I’d hoped it would. So I cut it off.
It was why I needed to sell my first home out in the “burbs”.
It was why I made a similar hard decision to sell a property in inner city KEW that was returning a reasonable cash return, and well located but had ZERO capital growth over ten years.
It was one of the reasons I sold a great apartment in Sydney’s North. I had improved it and added value. It was time to take my money off the table.
Your relationship with a property needn’t be a marriage for life. There’s no compulsion to “stay together” till death do you part!.

Information Product Creation: Never Compete on Price Because There Is Only One You

Information product creation requires extensive preparation, no matter which niche you work within and you want to make sure that your information product has a successful launch. That probably sounds scary and intimidating but here’s the thing: this is a one time effort and it will pay off in a foundation that is strong enough to get your ideal clients to invest in your high-end programs and services without the perils of a traditional funnel. This article will teach you a few of the things that you need to remember if you’d like to invest in yourself and start on the information product creation path using your unique talents and abilities. Remember that you never have to worry about anyone ripping off your ideas because if you understand how to properly position yourself around your story.

Understand Both Strengths and Weaknesses: It is good to have an impartial view of your own strengths and weaknesses when lay the foundation of selling yourself within the information product creation process. It helps you figure out where you are, what you lack and how to move forward so that you get as much growth as possible. It is more than important, it is urgent if you want to create fast success for yourself to have personal positive reinforcement and deep belief to provide yourself the support you need so that you can get over your own limitations to ensure that your information product is as valuable as it can be.

You also need to know exactly who your competition is so you can study them and use their methods to help you improve your own standings. Down recreate the wheel, but understand the wheel and position yourself going uphill from the competition. Check out which kinds of opportunities you’ve already got and try to figure out how best to use them while taking care to remember your strengths and weaknesses. This is a great way to figure out where you stand against your competition which helps you figure out how best to grow.

Launch on Time: No matter what, even if you haven’t officially announced your “launch date” you should launch the site when you’ve said you would. This will force you to stick to your goal and actually work on it. Thinking that “I’ll launch it when I think it’s ready to launch” will only hinder your efforts. You’ve got a responsibility that you need to live up to with your launch, and you can’t move back on that one. If you get close to your launch date and you are getting hung up on your self limiting beliefs in your information product creation, don’t worry this about getting it out there and not perfection. As long as it is usable you should launch it. Launching on time is the professional thing to do and it is more important than creating a “wow” effect in your site visitors. You can always update/upgrade your website when you have to, so there shouldn’t be any issue with that.

Analyze Your Own Concept: If you want to make your information product creation successful you need to understand how good your concept is: is it really going to work for your chosen audience or would something else be better? You already know about your competition; how does your concept measure up? If you haven’t come up with your own idea and are trying to work with someone else’s concept, do some more work on your own before your launch. People want original ideas because they’ve seen too many other me-too websites already.

Test Your Concept Before You Commit To The Information Product Creation Process: One of the biggest failures people have with information product creation is not testing an idea before putting a lot of effort into producing an information product. PPC to a small 5 page site with a landing page is a great way to test an offer before you even produce it. If people will sign up to get it, you can be sure that you can create an information product that will target eliminating the pain of your target market. The small amount of money will be invaluable in using crowd sourcing to direct the final outline of the information product creation process.

You’ll have lots of hurdles to clear after the launch of your information product and the only way to truly take care of them is to follow the advice in this article to work smarter. Plenty of people work hard, but it is the ones who work smarter who make real money online with the information product creation business model.

Home Based Business Ideas – Hints and Ideas You Can Use

If you have been considering starting a home business on the Internet, a few home based business ideas will be presented in this article.For your information, there are lots of ways to generate extra cash even when full-time jobs and overtime are not an option. Ideas include renting a room in your home, tutoring or selling items you have stored away for years and never used them.Here are a few ideas to consider:The key is to find what skill you bring to the table or something you believe would be fun to do. For example, if you have computer technical skills, you could teach a class, install computers or create websites. A good tip is to think about what people are willing to pay for.Among the fastest and easiest ways to get extra cash is by selling your unwanted and unused stuff in your garage or attic. You could post a few signs in the neighborhood letting people know you are having a garage sale or you could sell online with services such as eBay. Yes, you can use the Internet to sell your stuff locally.You can sell old books, comic books, sports equipment and any number of items you have put away and never even thought of using them. So, if you have been a pack rat for many years, now you can cash in on them.Another great idea is to rent out a room in your home or find a roommate if you live around universities, colleges or resorts. You could rent short or long term.How about earning cash by house sitting? You earn money and have a place to live, long or short term.If you are a photographer, you could work weddings, high school and college graduations as well as sports events.An all-time favorite part-time job is tutoring specific subjects for high school or college preparatory classes. You can teach anything you have detailed knowledge of and get paid for it.Get your creative juices flowing and I am sure you can come up with some good ideas for earning extra cash. You can do so much with a working knowledge of a personal computer and the Internet. The fact is, running a home business on the Internet will replace many traditional jobs in the near future. You will enjoy and benefit much from being your own boss, setting your own work schedule and spend quality time with family.These home based business ideas can be started on the Internet by anyone with a computer and a broadband Internet connection.