Do you dream of financial freedom? Would you like to attain a passive income through property investment?
Then this article is for you: we’ll cover the ten sequential steps to mastering property investment and profits. If you read until the end, you’ll have a better grasp of wealth management, as well as the best types of investment properties. Let’s get started.
1. Identify Your Financial Goals
Discerning your financial goals is significant for three reasons. It forces accountability for your spending, generates motivation when life gets challenging, and intersects with your life plan. By mapping out your financial goals before you start investing, you’ll have a sensible guide for the long-term.
There are three branches when considering goals: age, income, and outlook. Income is always a natural starting point, as you can’t invest what you don’t have. Age, on the other hand, determines other factors in your life, such as family, retirement savings, and more. Your outlook can be described as the ambition and overall hopes for starting the investment journey.
Remember, it’s never too late to adjust your life plan and begin property investment.
2. Become an Expert on Property Investment
To be a successful property owner, get educated on all aspects of property investment. As with any career, you can assume that the more of an expert you are, the more successful you will be. Let’s face it—property investment is complicated. It would be best if you learned the ins and outs of this business.
Some essential things to understand are the housing market, financing options, investment strategies, risks involved, and more. It’s also vital to stay up to date on the latest legal rules and requirements for your location.
3. Save Up for a Deposit
Before you consider buying your first property, you should do a financial analysis. A business analysis will help you ascertain the best way to finance your property, as well as how much you can afford to buy. Once you have your eyes set on different houses, you should start saving for a deposit.
Keep in mind that a deposit will usually be 10 to 25 per cent of the value of the property. The higher the deposit, the less risk you have on your home loan. You may have to reassess your current budget and put money aside to save for this sizable deposit.
4. Purchase the First Property
There is nothing more critical than choosing the right first property. Make sure the one you select will outperform market averages in capital growth.
Some ways to ensure your investment will be high-yielding is to choose an up and coming area in your city. Be sure to select an investment-grade property or one that is of sufficient size and quality to be purchased later on. Some factors to consider are the unemployment rate, population growth, and mortgage rates in the prospective location.
5. Use Risk Management Strategies
To minimize loss and damages if the market crashes, it’s vital to engage in risk management. Risk management can be any of the following:
- Landlord Insurance
- Life Insurance
- Income Protection Insurance
Since some factors are hard to predict, such as low tenant occupancy, it’s best to have cash reserves saved for hard times. Owning your properties outright or without debt is another risk mitigating strategy.
6. Attain Assets & Maximize Cash Flow
After home loan repayments have been completed, taxes have been paid, and repairs have been account for, passive income will start to roll in. At this point, you can readjust your goals and determine your target income for each month.
After determining how much passive income you need each month, you can start to build your portfolio with assets to meet your goals. The more properties you invest in, the more cash flow you’ll begin to earn.
7. Pay Off Debts & Own Property Outright
As you build your portfolio with assets, you’ll need to start selling properties to pay off other home loan debt. Some property owners prefer to use this method of building, buying, and trading to pay off their mortgage faster.
When you own your properties outright, you’ll achieve true financial freedom. Your cash flow will also be maximized as you reduce expenses like monthly rent payments.
8. Use Equity as Income
Going off of the previous step: it’s essential to give your properties time to accumulate value before selling them. One option is to get an equity loan while your properties become more valuable.
In an equity loan, the borrower uses the equity on their home as collateral on a loan for a lower interest rate. The time frame is usually around ten years.
Over time, renting out more properties will raise your profits and help you to pay off the loan.
The more properties you have, the more growth you’ll see in your equity.
9. Live Off Sales Profit
Living off of sales profit means selling your properties strategically. Property investment is a long-run game, and the idea is that by the time you sell your property, you’ll achieve maximum profit.
By selling properties for more than you paid, you have the opportunity to live off of this passive income. You can also deposit the passive income into a high yielding deposit account which generates 4 to 5 per cent interest per year.
10. Review Your Portfolio Regularly
To secure your financial future, you must review your portfolio at least annually. This allows you to adjust your strategy and eliminate any poor investments. If you see that a property has poorly performed over a 3 to 4 year period, this signals it’s a bad investment.
If this happens, your options are to sell the property, change its’ use, change the property manager or do renovations.
We hope that after reading this, you better understand the essential ten steps to financial freedom as a property investor. If you’re ready to begin your investment journey, reach out to us today.