The 4 Rules of Property Investing
It is amazing that 1.5 million people in Australia invest in property, yet statistics show that less than 1% get to 5 properties. Even worse, most sell in the first 2 or 3 years because of the stress of owning one.
Investing in property isn’t easy, in fact, it can be downright stressful. However, anything worth having or doing often is. When we started investing in property back in 2000, we were complete novices. We read a few books on the topic and listened to some real estate agents, certainly not the best way but…
We just started and slowly (and very painfully) worked it out for ourselves.
As we learnt the hard way, by making mistakes, falling on our face, picking ourselves back up and trying something different, we slowly but surely started to find the right things to do and stopped doing the wrong things. It took time. A lot of time. What I worked out is a system and a set of simple rules to follow that cut out the hard stuff and the risks.
Is this the only way to invest in property? Gosh no! There are many ‘recipes’ out there, and there is more than one way to invest in property and succeed. Ways like renovating, subdividing, upgrading and developing. All of which take time and energy and, in most cases, a fair bit of money to achieve. There is also commercial property and developments. None of these are necessarily wrong – although we did try them all ourselves. There is very little you can do with property that we haven’t tried.
At the end of the day, I was looking for something simple like ‘property investing for dummies’, so we could still get on with our lives and invest little or no time at all into the properties and get on with our busy lives. We were both running businesses, we had kids, we liked to socialise on weekends instead of killing ourselves renovating our investment properties.
I was running a successful mortgage broking business, teaching fast debt reduction and money management. Once I had created this property investment system, my clients started to notice we were accumulating a property portfolio without the normal stress and still had time to have a life. They said ‘we want to do what you are doing’ thus Think Money was born.
What I have put together is the simple way that novice investors, busy people and people who don’t want to get consumed by investing, people who want to just live their normal lives but still set themselves up for the future.
It helps if you follow the basic rules I created. I created these rules because no one told me how to invest in property or how to set the money side up. Both are vital if you want to not only succeed but stay sane as well. It lowers risk, it lowers stress and increases your ability to grow a large property portfolio.
The 4 Rules.
- Separate your life from your investment side.
- Get the right loan set up
- Buy brand new
- Never, never, ever sell!
It took me years to work out these simple rules, and yet they totally revolutionised the way we handled our money and managed our properties.
Rule number 1 – Separation
This meant we stopped mixing our money. We used to have our rent come into the same account as our personal income, then we would pay the school fees, groceries, and ordinary living expenses. When the expenses came in for the investment property like the second rates and water, not to mention the odd bit of maintenance, it would really impact on our lifestyle. Once we separated our life from the investment side it was so easy!
Rule number 2 – The Right Loan Set Up
With the right loan we went from being chaotic money wise to having our money tidy and straightforward, while always having enough to manage the properties and pay the bills no matter what happened. Using equity, we set up a buffer fund which meant if something went wrong we had time and money to fix the problem or wait out the vacancy etc.
Rule number 3 – Buy Brand New
I wish we had known this rule at the beginning. We have bought old properties because they were cheap. We bought old properties to renovate and we bought old properties because it was quicker than building new. Great idea, right? Wrong. Once we worked out all of the benefits of buying new, our portfolio and wealth started to grow. The tax benefits, the lack of maintenance costs and the improvement in tenants were just a few of the benefits. Getting the perfect property is essential to creating wealth. All of the rules are important – getting the right property is essential.
Rule number 4 – Never, never, ever sell
The trick is holding the property forever. There are a few reasons for this but the most important one is how money works. The value of money goes down over time because the cost of living goes up. The value of property goes up over time and so does rent. Therefore, retiring on money will send you broke, retiring on property will give you an ongoing increasing income for the rest of your life.
There is actually another rule. Rule no 5 – is get a mentor and mix with the right ‘herd’. It is difficult if not impossible to get through the stressful year 2-6 of investing in property by yourself. You will second guess yourself, you will think the properties are going nowhere, you will be crushed with doubt as the media go on their tangents of bubbles bursting and the impending ‘end of the world’ property crashes etc that never eventuate.
You will suffer doubt as your family and friends try to ‘save you’ by adding their doomsday stories.
Mixing with the right people and having someone with experience you can lean on for help and advice is the easiest way to get ahead. Most people try to do it themselves to try and save money. The fear of costs is one of the most significant holdbacks of creating wealth I have seen.
People try to save on fees – they think paying for advice is expensive.
- What they don’t realise is the amount of money they will make from getting the right advice will usually far outweigh the cost of the advice. How many Olympic gold medallists won without having a coach?
People try to save on costs – this can hold them back for years.
- Lenders Mortgage Insurance (LMI) is one of the most common. I consider paying lenders mortgage insurance as one of the growth accelerators. People I watch who have paid LMI will often be ahead wealth wise 2 or 3 times than the people who don’t. It is simple maths; a good coach can explain why.
Property investing can create a comfortable retirement with an ongoing increasing income for the rest of your life. Like planting a tree – it takes time. It takes 10 to 15 years to have a property mature – just like a tree.
It isn’t an instant money-making activity. This is why most people fail. The property market works on cycles, and the cycles vary. In any AVERAGE 10-year cycle, you have 2 or 3 years of really good growth, 5 or 6 of flat and a couple of years of retraction (or mongrel as I like to call it) and this is just an average… sometimes a property can double in 6 years sometimes it can be flat for 14.
This is why most people break rule 4 and sell. They think this property isn’t doing anything – I should sell and buy elsewhere… there are selling costs and buying costs, time and pain and so the mistakes go on. Eventually, these people give up and quit.
At Think Money, we specialise in money. We can help you learn how to manage money, reduce debt and get into a strong position to allow you to create your property portfolio with the right knowledge and education to make the right decisions.
We are like a gym for your money and a university for property education. Our clients not only receive personal coaching, but they also get to mix with like-minded people at our education events and seminars. They learn not only from us but from the experience of our hundreds of successful clients as well.
Come in for a complementary wealth coaching session. We look at where you want to get to, analyse where you are starting from and create your financial roadmap to follow.