For the first investment property the hardest part is the preparation. Property investments have to produce income. What are the three basic rules and how to get into the first property investment?
Property Investor’s first Investment
How much time and money can you afford?
Getting into a new adventure
The hardest part is preparing for a good start. If you haven’t reached maturity to manage emotions and found balance in life investing will be a roller coaster ride. Why would I say that?
Property investment involves especially at the beginning more work than most people can imagine. You can only invest what you already own (saved money, time, knowledge). How much could you save so far? Permit career and family to work for a new income stream? Are you conversant with the basics?
Believe it, what you own is not enough! To overcome limitations property investors make compromises, use common strategies like leverage and develop their own strategies. For being a hands-on investor (active landlord) you need to be resourceful, or as passive investor you might need good income streams to pay for engaged services and investments.
Less matured property investors with small pockets and little energy to do the hard and time consuming work are most receptive to coaching programs or even worse getting drawn in by sophisticated property spruikers who promise to take your starting capital for making you “millions over night” to retire in luxury. I never forgot Albert Einstein saying;
Obviously people need to skill up by studying, joining interest groups, and of course seeking advice from the professionals. Nobody can do everything. That is why forming a team to execute specific due diligence procedures is essential to build up a property investment portfolio. Just take it slowly, grow by facing the challenges and work it out. It is like putting a tree seed into the soil, grafting and pruning the offshoot and after nursing for few years fruits fell off the tree.
Three basic rules
The approach for investment properties differs from purchasing a private home you want to live in. Investments have to produce income (measured as Return On Investment—ROI).
In contrast to homeowners who cumulate earned money (after tax) as equity, successful investors leverage against their income by borrowing to invest. That is why homeowners are limited by their pay-cheque, but investors don’t run out of “steam” as long as they stick to their investing rules. Look at the basics;
#1— A property investment must produce income (yield and/or capital gain)
Yield properties provide cash-flow to pay the bills. Capital growth (gain to increase equity) is essential to obtain finance to build a property portfolio. Balancing yield properties with capital-gain properties is to maintain a level of cash-flow and financial stability to resist property market swings.
Note—Negative geared investments with focus on off-setting tax is an exception of the rule that makes sense for high income earners who can afford short-term losses in favour of long-term capital gains.
#2— The investment structure must protect your business
“Get quick rich” with properties is not such thing and long-term achievements pay only off when asset protection, income distribution and taxation meet legal obligations. The rule of thumb for managing the risk is, an investor should control everything but own nothing! If in dispute, the company or trust own the assets and the directors and/or trustees have the control.
#3— Investors must be prepared and ready for opportunities
Being ready includes having access to sufficient finances, a plan waiting for the next step and a team of professionals (lawyer, accountant, agents and trades people) to leverage time and knowledge.
Exactly knowing what to do and identifying opportunities are essential as investors win or lose when acquiring a property investment.
How to get started with the first investment property?
Guessing, all three basic rules may not answer the key question “how to get into your first property investment?” Well, people’s nature differs, I am a “doer”. I purchased my first investment property in my own name by following rule #1, not knowing about rule #2 and #3. Of course on the way getting tenants for the first rental, being a greenhorn landlord and developing a plan for investing the residential properties, I made lots of mistakes. However, my investments produced income (rule #1) and in gaining experiences I sorted rule #2 for following investments, and rule #3 made it possible to quit after few years my day job. What are you waiting for?
Stick to the basic rules and spend time and money wisely, you will never get as much as you need. Be guided by your priorities and your values. Mistakes give you the sense of (guts) feeling for right and wrong. Similar to a good marriage, you don’t need to study the Relationship Act. If you never stop learning and are guided by common sense, you will become a successful investors. Good luck.
Investor’s & Landlord’s Blog
Investor’s & Landlord’s Luck and Failure
Klauster Blogs lead to a real person who worked as computer network architect for many years in different countries until retiring from IT and mastering a life as property investor and landlord.
The passion of sharing experiences comes from turning hobbies into income streams and business. Helping people to avoid pitfalls and to be free to choose has been satisfying and most rewarding.
The philosophy to treat life, partnerships and hobbies as an investment has helped people in our circle. Life is a dream with a deadline, happiness comes from making the right choices and having realistic expectations.
Come along and participate — boost your confidence!