How Investment Property Works (In The Real World) (Ep206)


Welcome to the on property podcast, your daily
dose of property education and inspiration, On paper I think investing in property can
often sound pretty easy, you know, you save up, you purchase a property, the rent comes
in, you pay off your mortgage, you re-invest and you go again. But when it comes to investing
in property in the real world it can be a very different situation.
So today I want to talk about how investment property works in the real world and what
are some of the thing you can expect. -Music- Hi I’m Ryan from www.onproperty.com.au your
daily dose of property education and inspiration. The goal when people invest in properties
is almost always to make money and people tend to make money in three different ways.
They make it through: Positive Cash Flow – this is when their income
coming in from their property is greater than the expenses and therefore you have a surplus
of cash every cycle, so that might be every week, every month, every year whatever it
is. The second way of making money is through capital growth, which is when you purchase
a property it goes up in value and obviously that growth in value is profit. Thirdly another
way people make money through property is through the tax advantages that property offers.
That might be through something like depreciation where you’re earning a high income and that’s
paying a high tax and by making a loss on your property or more specifically a on paper
loss through depreciation you can get some tax back, you are not making a profit a profit
on the property but the offset of the benefit of the tax can make it profitable overall,
it is a hard topic to explain, and I have done more post on that so you can check those
out. When you are investing in the real world it
is important to know that the first property is almost always going to be the hardest property
that you purchase, there is so much to learn and the fact is I’m up to episode 206 of this
podcast and I haven’t even scratch the surface of what there is to learn about property.
So basically we are never going to run out of things to talk about because there are
so many different things that you need to learn in property.
You need to learn, you need to learn about leading and the different criteria for that
and what different types of loans there are, principal and interest risks, interest only
etc. You need to learn about contracts, researching areas, you need to learn about the different
types of properties and the different investment strategies, I could go on and on, there are
so many different things you need to learn. That’s often why investing in that first property,
that first property purchase is the hardest for a lot of people. There is a lot of fear
that’s going to hold you back, because there is so much to learn and you cant learn it
all, you obviously in some way almost everyone who is purchasing their first property is
taking some form of stab in the dark. There’s something’s they know they don’t know but
they invest anyways and sees how it turn out. So a lot of fear holds people back, with a
lack of experience dealing with the players in the industry, you don’t know what to look
for and you don’t have a team of people behind you to guide you like your mortgage broker
or accountant, your solicitors and your convincer, so you really have to build up everything
from scratch. So when your investing in the real world know
that the first one is going to be the hardest and you have to be very determined to break
into the property market. In the real world when you are investing in property and you
are negatively geared, you buy a property and you feel the pinch right away, because
a negatively geared property means you are paying more in expenses than your getting
back for income. So you are starting to invest in property but it’s actually starting sucking
your cash flow away and making your lifestyle harder. Investing is meant to be, to create
a better lifestyle for ourselves, but if your negatively geared then your going to feel
the pinch and it’s going to have an impact your lifestyle in the now and that’s going
to be pretty hard for a lot of people to swallow. If your positively geared and you buy a property
and it pays for itself, you probably still going to need to use that excess money to
save up a “kiddy” which is for miscellaneous expenses or situations you didn’t perceive
coming down the line. I don’t imagine a lot of people would invest and have this huge
buffer fund, incase a water heater breaks and its 2 – 3,000 dollars to replace or something
else goes wrong and you need a new roof and its going to cost you $10,000 to do that,
So I think for a lot of people positive cash flow property, even in the early years your
not going to see much benefits in your lifestyle, your either going to be using that extra money
to put aside for those miscellaneous big expenses, or your probably going to be saving to buy
a next property or your paying off your mortgage. When, after purchasing your first property
it’s not all downhill from there either. If you hold our for a while and it goes up in
value then you can defiantly go ahead and leverage against that in a lot of cases to
purchase another property, but in a lot of cases for people just because you own one
property doesn’t mean your going to be set for life, so you’ll be busting your ass again
to save another deposit or you have to wait for the value of that property to go up, and
then hen the value of the property goes up, you have to get an equity loan to purchase
a second property if you have not saved your own deposit and that’s going to put you in
more debt , your expense will go up even more now that you’ve got a larger loan which means
more interest repayments, so depending on how you invest this could obviously cause
a bigger pinch on you lifestyle, it could just cause a lot of stress, even if its positive
cash flow there is no grantee, if the property is not rented, that you need to have money
to pay for it, you know, there is a lot of factors that you need to take into account
and your dealing with large sums of money so there is going to be some sleepless nights,
there’s going to be some level of stress where you don’t know how your going to do it but
I’m pretty confident that your going to find some way to do It because when we put ourselves
in a situation where we either sink or swim, most of us are going to find a way to swim
and I love that about people and I love that about human nature, is that when we put ourselves
in situations that are tough, were going to find away out of it and were going find away
to make this property investment work for us and to achieve the financial freedom that
we want. Really I think from all the stories I’ve read
and all the books I’ve read or all the people I’ve spoken too, all the interviews I’ve done
investing in property all comes down to finding a method that works and rinsing and repeating
that method. So for different people that method is always different, it could be positive
cash flow properties or negative cash flow properties, it could be developments, I could
be Granny Flats, it could be, I don’t know, it could be Sub division, renovations.
There are so many different ways you can invest and so many different people find so many
ways to success and that’s one of the great things about property, there are so many different
ways to invest and still be successful. But for everyone I speak to they tend to fumble
around in the dark for a few years, the purchase a property here and there maybe they get lucky,
maybe they don’t and then they stumble upon something that works and then once they stumble
upon that, that works they just rinse and repeat it, they buy another property that’s
similar to that, that’s going to generate profit in a similar way or that they can add
value in a similar way and they just do the same things over and over.
Every property deal they do they get better and better at it, they know the ins and outs,
they know how to move each deal fast to get the most money out of it and so, they obviously
go ahead and achieve financial freedom so, property is not a one size fits all, its not,
your going to invest, this is how you should invest, and I’ve never proclaimed to be a
Guru and the thing I find frustrating about the Gurus is that they have done exactly what
we just talked about, they have fumbled, they found a method that worked for them and they
rinsed and repeated it and then they are telling everyone to do the same thing. I’m not against
them teaching their methods and letting people know this is how you do it and maybe you should
try this but everyone’s path to success is going to be different and to just assume that
because Steve McKnight bought 130 properties in under 4 years and he achieved success in
that way, that doesn’t necessarily mean its going to be a good path for you.
Just because Ben Tuner who I talked about, who I interviewed, sorry, in episode 102 and
103, just because he has invested in properties in Australia and now is investing in the US
and having great success over there, just because he’s taken that path doesn’t mean
that’s going to work for you. So I think how investment properties work
in the real world is that its hard to get into your first property, your probably going
to fumble around for the first couple years and then if you stick with it and keep learning
and be dedicated your going to find a method that works and is all about rinsing and repeating
that method and ensuring that your continuing to make money in every deal and from everything
I say that’s how real investing works in the real world. So that concludes today’s episode
You can get the full show notes and transcriptions by going on www.onproperty.com.au/206 And until tomorrow remember that your long-term
success is only achieved one day at a time.

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