Using real estate to create financial security for the future is a popular option for many Australians, however it can be tricky to know how many investment properties you need to retire to get the outcome you desire.

When it comes to planning for retirement, you need to ask yourself, what kind of lifestyle do you want? For most people it’s to enjoy their golden years without having to worry about money or penny pinching from week to week.

Investing in property is a great way to set yourself up to thrive in retirement because it has the potential to not only increase your net worth but also provide you with a stable income. Many investors ask the question of how many investment properties you need to retire?

The short answer is that there is no magic formula – everyone’s retirement goals are different, not all investment properties perform similarly, and predicting the future is impossible.

However, with help, you can develop a plan for building a portfolio that will satisfy your retirement lifestyle needs. The key is to be able to see past your first one or two properties as you’re going to need a much larger portfolio than that to gain financial freedom.

WHY INVESTORS FUND THEIR RETIREMENT WITH REAL ESTATE

There are a multitude of ways to fund your retirement, and the most common among Australians seems to be relying on superannuation and pension payments. Unfortunately the harsh reality is that depending solely on these will likely force you to live very frugally, especially with living costs rapidly rising. Today the pension sits at about $36,000 per annum, per couple. It doesn’t sound like a lot right?!

Real estate is a long-term investment and therefore time is on your side. The earlier you embark on your investing journey, the greater success you’ll likely achieve. Real estate is a key investment vehicle for many Australians when it comes to planning for retirement and that is because it is stable and will always be around in society.

Positive Cash Flow

Rental property has the potential to generate income if done right, and this is one of the main reasons why people use property investing to retire. The cash flow from a property refers to the pre-tax income earned and is calculated using the below formula:

weekly rent × number of weeks rented in the year = annual rent

– all expenses (excluding interest)

÷ purchase price × 100 (to get a percentage)

This is also known as rental yield. A good figure to aim for is between 4-6%, the idea is for the yield to mirror the interest rate as closely as possible. Ideally, your rental income and tax deductions should be covering the majority of your running costs, and then some to generate a profit.

However there may be times when your cash flow is lower than forecasted, or even negative. Any business is unpredictable, especially the landlord business, you may have to pay for unexpected repairs, or your property may take longer to find a quality tenant.

Any good property investor understands the importance of safety buffers, which refers to money set aside in your budget for any unforeseen expenses. This is not extra money to go on holiday or buy a new car, it should be reserved for legitimate expenses connected with your investment property(ies).

Capital Growth

Home prices in Australia have historically increased over time. According to the latest report by the Australian Bureau of Statistics, the total value of the nation’s 10.8 million homes grew by $2 trillion to a record $9.9 trillion in 2021. What this means is that we have seen a 23.7% increase in residential property prices in the last 12 months, one of the strongest annual growth records.

Of course, nothing increases linearly, and real estate is no exception. However, as mentioned property is a long-term investment, which is why most real estate investors adopt a buy-and-hold strategy so they can make the strong gains that come with a normal real estate cycle.

Recycling Equity

The quickest way to build a large property portfolio is by recycling equity. Equity is the difference between the market value of your property and the amount still owing on your mortgage. This strategy allows you to purchase a property with someone else’s money.

Basically, the bank will allow you (pending conditions) to borrow against the available equity in a property. It can be scary to think about increasing your home loan, however you need to flip your mindset to see the benefit of expanding your asset portfolio using very little of your own cash.

Tax Benefits

Offsetting income with depreciation is perhaps one of the biggest tax advantages of property. Including depreciation within property expenses can increase the loss on paper without incurring a cash loss. Therefore, increasing the expenses and amount of tax deductions available.

Along your investing journey you may have a property in which the expenses exceed the rental income. This is known as a negatively geared property and is most beneficial for high income earners because the ‘loss’ can be offset against other income.

KNOWING YOUR NUMBER

Before you start building your property investment strategy, you need to get really clear on what kind of retirement lifestyle you want to live. This will help inform how many investment properties you need to retire.

It’s a morbid question, but it will underpin your future decision making, how much money do you need to die? Understanding how much income you want each year in retirement is a thought that many of us don’t think about until it’s too late. Whether you’re after a comfortable or lavish lifestyle, you need to do the maths. 

1. Determine your desired retirement annual income
2. Assume a gross rental yield (between 3-6%)
3. Divide income by rental yield

This will give you the amount of money you should have invested in property. It’s then up to you to use this figure and work out how many properties you should own which will be dependent on how much retirement income you desire.

THE THREE PHASES OF AN INVESTORS JOURNEY

There are three phases to building a property portfolio before an investor is ready to reap the rewards of their hard-earned labour.

Acquisition of Investment Properties

The period of acquisition refers to the initial stages of an investor’s wealth building cycle. Your main goal will be to acquire as many properties as possible to help build your asset portfolio quickly, and to generate as much rental income as you can to increase cash flow.

In this stage of an investor’s journey, interest-only loans can become an important part of the toolkit because they allow you to only repay the interest charges on your loan for a specified period (3-5 years). Interest only loans allow investors to tap into a market that they wouldn’t otherwise be able to afford. However, they can also be risky, especially when the principal payments kick in. Any good investor will prepare for this and ensure they have a buffer set aside.

During the acquisition stage, you want to be focusing on high growth properties in a variety of locations in order to make the most out of your equity gains. To do this, you will need to understand what factors influence the market.

There are both macro and micro factors that drive the real estate market.

Macro drivers of growth:

• Population growth
• Infrastructure growth
• Supply vs demand
• Economics
• Demographics
• Yield

For example, you want to have your eye on locations where there are infrastructure developments because this attracts people to a location (population growth). In or near cities are often high growth markets because there are always job opportunities (economics) which again, brings people to the area. These people will become your tenants.

Micro drivers of growth:

• The owners established benchmark
• The new established benchmark
• Socio-economic
• Symbolic landmarks
• The ripple effect

The above drivers will help you narrow down what micro markets to buy in (suburbs or towns). For long-term growth, symbolic attributes are a unique aspect that can enhance the performance of an area. The owner’s established benchmark is when an investor looks for the ‘worst house on the best street.’ Finding a property that is a blank canvas, situated close to properties higher in value will give you a good chance of increasing the value of your investment through renovation.

Consolidation of Property Portfolio

Once you’ve exhausted all of the equity the banks will allow you to lend against, the next phase is to consolidate your investment portfolio. You’ll need to refine your investments to maximise rental yield, therefore increasing your cash flow. Most investor’s will cycle through the acquisition and consolidation phases numerous times until they are ready to transition to the lifestyle phase of their investing career.

To move into a positive cash flow phase, you will need to lower the loan-to-value (LVR) ratio of your portfolio. What this means is that you’ll need to reduce the amount of debt you have, you can do this in several ways:

• Sell one or more non-performing properties: as you move closer to retirement, it is wise to let go of properties that are making a loss, otherwise you’ll have to sacrifice some of your retirement income to maintain the investment.

• Add value to your properties through development or renovation: increasing the market value of your property will therefore increase the value of the investment against the mortgage.

• Stop buying properties (or reduce the rate at which you’re buying them): when you’re in the growth stage, it can get quite exciting expanding your portfolio quickly, but more properties doesn’t necessarily mean more income. As you get closer to retirement it is best to become very selective with the properties you acquire.

Once you’ve reduced your debt to a lower LVR – maybe somewhere like 50% or so – you’ll be able to enjoy the benefits of leverage while owning property that is positively geared. A property which is geared positively means that the income derived from owning the property exceeds the financial and maintenance costs incurred. Positive gearing is generally seen as lower risk than negative gearing because it provides more consistent income.

Retirement Lifestyle

You’ve finally made it! The lifestyle or legacy phase of an investment property career is the place the property investor is striving towards. You’ve built your portfolio to a point where it is generating enough income for you to retire (in whatever way that is to you).

Maybe you’ll work fewer hours in order to do something you enjoy more, such as travelling, gardening or golf. Regardless of what retirement means to you, the main idea is that you no longer need to work in order to fund your lifestyle, because your investment properties now provide that income for you.

Once they reach retirement, most investors adopt a more conversative approach to investing, in order to protect their assets that they have so tirelessly grown over the years. During this stage, there is less focus on building your portfolio and more emphasis on enjoying passive income.

THERE IS NO MAGIC NUMBER TO HOW MANY INVESTMENT PROPERTIES YOU NEED TO RETIRE 

Everyone wants to have passive income in their retirement, but not many actually reach the stage where they can successfully make the switch. The first step is deciding what kind of retirement lifestyle you want, and then working out how much money you’ll need to fulfil that.

If you’ve decided that property investment is your chosen vehicle for creating wealth, then your next step is to get help. Instead of asking, how many properties do I need to retire, you want to focus on the combined value of your portfolio and the returns it provides.

Find someone that has done what you want to do and follow their example. That’s where the TRC-Gorod team comes in. Learning from someone who has done what you want to achieve is the quickest and easiest way to learn.

Come along to one of our free property investment seminars. Our coaches and mentors have real life experience as property investors and can give you the tools, resources and knowledge to help you build your wealth portfolio for retirement.

Register now for the free property investor webinar
See our property investment strategy guide
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Ever thought you’d picked an absolute winner of a property only for the bank to come back with a list of valuation risk factors? 

It’s more common than you think, particularly in a rising market where values fluctuate so much that our ideas of what a property is worth actually start to disconnect from what a valuer sees. 

Now, there are a lot of considerations a lender will make when determining whether to give you a loan or not. Obviously, your personal finances like your income and outstanding debts matters greatly, but banks are also heavily concerned about risk – and valuation risk factors can really change how they choose to finance you. 

Remember though, while valuations can be a challenge, they aren’t the final word on what happens with real estate. As a property investor, it’s your job to determine if and how that property can grow in value.

Don’t start missing out on great real estate because the bank has deemed there to be valuation risk factors. You need to be in the market to benefit from it.

WHAT IS A VALUATION?

In the real estate industry there’s this little phrase – There is God, and then there are valuers. As a property investor you need to understand why valuation risk factors matter in your ability to borrow.

Essentially, a real estate valuation is an unbiased report that details what a property would be worth in the market. 

The person conducting the report – the valuer – is usually outsourced by banks and lenders to independent companies so that it remains impartial. 

A valuer cares only for history. Their role is to look back and determine what was happening in previous markets. Think of them as living three to six months in the past at all times. By nature, they are very conservative when it comes to risk. 

The most important thing you need to remember about a valuation is that it is tied only to lending, so as property investors, we are likely to need them in order to obtain finance. The final number given by the valuer advises the bank or lender how much they could allow you to borrow.

Of course, this doesn’t mean that the final sale price will align. The market is influenced by so many other factors and there is no way to know how much a vendor or seller could get for the property. However, they are the most accurate way to determine what a piece of real estate is worth. 

For a more in-depth look at how you can value real estate yourself, this is an awesome podcast to check out: how to value real estate.

THE 8 VALUATION RISK FACTORS LENDERS LOOK AT

Lenders rate each factor on a scale from one to five. They then make their finance decision based on both your personal situation and the property valuation risk rating you get.

1. Location

Is the property in a highly desired location? Is it close or far away from amenities?

Naturally the closer a property is to key amenities such as employment hubs, transportation and quality education, the better the rating that suburb will receive. 

Choosing a fantastic location is crucial for property investing success. Working with a property coach or strategist will help you narrow down the best areas to buy in that work for your budget.

2. Environmental

Properties in areas prone to natural disasters such as flooding and bush-fire zones will always rate as a higher risk. 

It’s also generally harder to get comprehensive insurance in these suburbs which is something to factor in beforehand.

3. Improvements

Newer properties typically rate better than older or more established ones, however if a property shows signs of good maintenance over the years, and improvements have been finished to a good standard, it can still attain a good rating.

4. Land size

Certain land-ownership issues such as zoning, title, and access can impact the marketability of a property.

Lenders want to be assured that each of these factors are satisfactory and that no outstanding problems will arise that could impact your investment.

5. Volatility

A lender wants to know if that market is more subject to volatility. For instance, an inner city unit might be deemed more of a high risk property if there is a lot of oversupply in the market.

6. Expected future value

Lenders tend to ask valuers about what’s going on in the market and where it appears to be headed.

Basically, they want to know if they can expect a reduction in value in the next two to three years based on all these other valuation risk factors.

7. Local economic conditions

Single-market economies where there are very few employers and/or where the employers are in a high turnover industry (e.g. mining or tourism) will rate as more of a risk than places like major cities where there are a number of employers in a diverse range of industries.

8. Market sector

Finally, lenders want to know where that property lies in terms of saleability and whether they will be able to recoup their costs should the need to sell arise. 

HOW TO AVOID BUYING A HIGH RISK PROPERTY

Each of these valuation risk factors determine the position and quality of your property in the eyes of the lender or bank. 

A property valuation risk rating of four or five is considered to be relatively poor security for banks, which means there is a chance the bank will limit lending or not even lend at all.

Of course, we don’t want that! So how do you avoid buying a property lenders would consider high risk? 

Well, the most obvious one is buying in a good location. 

There are so many things to consider when it comes to location which is why you should never a) choose location based on preconceived ideas, and b) pick a location without doing a tonne of due diligence first. 

Here some quick tips when picking a location:

• Avoid buying on main roads – the noise and traffic will boost your risk rating
• Similarly, avoid properties that back onto train lines or are right next to an airport
• Buy near good amenities like transport, schools and cafes
• Avoid locations that already have an oversupply of real estate
• Don’t buy into suburbs with high vacancy rates

The other factor you want to consider is whether or not it appeals to the majority demographic in that area. 

Above all, you want to make sure you’re buying into an owner-occupier suburb – not an investor suburb. If the percentage of homeowners is higher, it’s likely to be a safer investment.

That’s because owner-occupiers like to think long term, so they won’t get up and leave their home in a crisis.

MAKE SURE TO DO YOUR COMPARISONS

A good place to start when you’re considering a purchase is to look at what you’re comparing it to. You can do that in three ways:

Compare the place

We often see the comparison of property when it comes to regional versus city. 

City real estate is naturally more expensive to buy and smaller in land size, while regional real estate is cheaper to purchase with a lot more space inside and out. 

However, you need to compare what both places can do for you. City apartments for example attract higher rental yields and higher occupancy rates, making them a big win for increasing cash flow and creating quick income. 

Regional properties often fetch lower yields and are at this moment going through longer vacancy periods thanks to coronavirus pushing people to live in places where they work. 

Compare the infrastructure

Real estate needs some fundamental factors that will not only increase its capital value but also attract good rental rates. One of those things is infrastructure.

Good infrastructure opportunities like new roads, public transport and power facilities don’t just make an area more attractive to live in, but it also creates jobs – which means more income in the area.

While the property you’re looking at might seem like a steal, if it isn’t supported by good local infrastructure, the area won’t develop and grow and over time people won’t want to live there. 

Compare the place economy

A place economy is an area that is attracting wealthy people – not only to live there but to socialise and be seen there. 

Bondi is a classic example of this. Bondi itself has become a brand that the whole of Australia knows about. People want to travel there, live there and spend their time there. 

So if the option is to buy a huge $1 million house in the countryside where no one lives and it’s an hours drive for a decent cup of coffee, compared to a two-bedroom apartment in Bondi for the same price, wouldn’t you go for the one where you’re likely to get better and more consistent returns? 

THERE’S NO RISK TO VALUATIONS IF YOU CHOOSE THE BEST REAL ESTATE

Valuations and valuation risk factors shouldn’t be a factor of concern if you’re smart about where and what you buy in the real estate market. 

Once you get the hang of property investing you’ll instinctively understand which properties will return lower risk ratings and which ones are more likely to get knocked back by lenders. 

As we know the best way to learn is by connecting with the experts who know this stuff inside and out. Meet the best in the business at our next free property investing masterclass. Our real estate coaches have over 20 years experience helping investors make smart, informed decisions, helping them create million dollar portfolios to get them on the path to financial freedom.

Register now to join the next seminar near you.

Ever wonder how people can save up just one deposit but end up going on to buy multiple properties?

We have the answer! But first…

Buying an investment property and growing a portfolio that is going to generate long-term wealth is a discipline of business. In basic terms, this means you have to have a clear understanding of how you’re going to maximise your profits.

Because of this, every investor needs to be able to develop a cash on cash strategy to help bank roll their property endeavours to ensure they have a functional and profitable business model.

THE CASH ON CASH FORMULA

When buying real estate, you need to find a deposit, which usually isn’t provided by a bank or lender and generally has to come from your own savings.

For a property transaction, it can be anywhere between five and 30 per cent of the loan amount. The deposit is, essentially, your capital and it’s never wise to invest capital unless you’re sure you will get results.

The formula that’s used to measure the likely performance of your deposit is known as cash on cash return.

THE CASH YOU PUT IN…

Essentially, these monetary returns are the fundamental instrument to building a successful property portfolio.

So many property investors are blind to this concept and how it works. To be completely honest, when I purchased my first place, I too was unaware and ended up paying the ultimate price. You see, I bought a property with my life savings and injected $30,000 into the market that I couldn’t afford to lose. When the market didn’t grow, I was unable to get that capital back in the form of equity. As you can imagine this was a tough lesson to learn and one you want to avoid.

Seasoned investors measure cash on cash returns in 12 month increments.

THE CASH YOU GET OUT…

For example, if you were to put $30,000 in the market, accumulate the asset and achieve growth over twelve months to gain a further $30,000, this is considered to be a 100 per cent cash on cash return.

To put even more simply, if you had $30,000 in the bank and at the end of 12 months you had your original $30,000 plus another $30,000, you would have a pretty good deal.

Cash on cash is the same principle, only it’s achieved through the property market. It allows you to secure and retain your asset, but still have a readily available deposit to fund a new investment.

Return on capital is the true cornerstone of advancement. Never buy a property as an investment if you cannot get a high cash on cash result. Cash is king and recycling more of it allows you to re- invest.

BANKROLLING YOUR CASH ON CASH

So how do you stack the deck to ensure you’re going to end up in a cash on cash position to be able to continue to build a strong performing property portfolio?

You need a good understanding of real estate as an investment.

Real estate is one of the only assets that works for you while you’re sleeping. Value of real estate rises in either capital growth or rental growth all day, every day, without any input from you, meaning all you have to do is sit back and watch your bricks and mortar appreciate!

However, it’s not true that you can simply snap up any old property and expect it to have great capital growth. In 2021 and beyond you will have to buy real estate based on a variety of factors such as location and liveability.

LEARN THE ESSENTIAL PROPERTY INVESTOR BASICS

Staying up to date with current market trends and predictions will be key to making sound and sustainable investing decisions that will offer long-term gains in an uncertain and changing future.

Get ahead of the game and arm yourself with the tools and resources to help you thrive as a property investor. We are offering a free a property investing seminar for people serious about learning how they can create a future of security and freedom through the vehicle of real estate.

Don’t leave it to chance. Discover the most important real estate buying fundamentals today.

Register now for the free property investor webinar.

In property, proximity is power – meaning the people you choose to surround yourself with will have a direct impact on your ability to create wealth through real estate. 

Like anything that results in large returns, there are a lot of moving pieces and unless you’re an expert, you will need help to achieve high levels of success as an investor. 

DON’T DEFAULT ON YOUR DREAMS!

At first, getting the right advice can feel complicated, and often-times people are drawn away from real estate because they are bombarded with their day to day lives. They are unable to grow and be financially free because the hangman’s noose of ‘time poor’ is squeezing their neck. 

Worse still, they default to getting advice from well-meaning friends or family who are yet to have any real experience in achieving long-term success through real estate ownership. 

Most individuals are not influenced by people with a purpose or who lead in their industry, but rather by the people around them who aren’t always the best examples. 

True success comes when you still love those people but choose to learn and adapt the principles of those who have rolled up their sleeves and got their hands dirty to be where they are today! 

SURROUND YOURSELF WITH A MILLIONARE MINDSET

Look at the people around you and ask yourself the following questions: 

• Who do I have around me? 
• What are they doing to me? 
• What have they got me reading? 
• What have they got me saying? 
• Where do they have me going? 
• What do they have me thinking? 
• What do they have me becoming? 

Wealth is a habit; and rich people have the habit of living well. They pass that on, they teach, share, network and help each other. 

The fact remains, those you surround yourself with, do have a high impact on your ability to create and sustain wealth. 

GET A MENTOR ASAP

If you’re not able to find people who are a shining example of what you deem to be ‘successful’ – that’s ok! Surrounding yourself with the right group can take time, but by consciously and deliberately gravitating towards individuals who are smarter than you and have achieved more than you, will naturally lead to growth in your personal circle. 

In the meantime, this is where a professional mentor comes in. Someone who has the skills and demonstrated experience, to help take you from where you are now to where you want to be. 

In Australia and New Zealand today, there is a huge class gap. The rich are getting richer and the poor poorer. The power comes in knowing you have the ability to change your position and that with the right help, anything is possible. 

REAL ESTATE IS A TEAM SPORT

Experts are experts for a reason. They bring experience and knowledge that will help immensely when it comes to making the big financial decisions that are involved in property investment. 

Of course, you should always do your own due diligence. You should know your numbers, your lending, your insurance, your market knowledge, and how it all fits in with your overall investment strategy. 

However, building the right team around you – with professionals who have investment experience themselves – will ensure you are buying smarter, not harder. 

Who are the right people to talk to? A super star property coach will guide you in every area of property investment, as well as help you find the right accountant, financial planner, buyer’s agents, a conveyancer or solicitor, mortgage broker and property manager to ensure everyone works together to get the best possible outcome for you.

Plus, there’s the added bonus that you’re not in this alone and you have support to stay focused on achieving your financial goals. 

BUILD YOUR TEAM AND GET STARTED TODAY

Remember, the first step to success is surrounding yourself with the right people. 

Our free property investment seminars will help get you started on your investment journey by sharing the best tips and resources to make well-informed, smart decisions. 

Meet with the experts you can trust. Limited spots available so book now.

Register now for the free property investor webinar

These 4 tips will help you pay off your mortgage early without straining yourself. 

Paying off your mortgage faster will save you money and take away the financial load sitting on your shoulders. Here are some ways to get rid of your mortgage debt faster.

Switch to Fortnightly Repayments

Like most people, you are probably paying monthly. 

Each year has 26 fortnights. If you cut your monthly payment in half and pay every two weeks, each year you’ll be making the equivalent to 13 months worth of payments. 

This could save you thousands and reduce your mortgage fast. 

Consider An Offset Account

An offset account is like a regular bank savings/transactional account. The difference is that it is linked to your mortgage. The balance held in the offset account reduces the amount you owe on your mortgage. This results in a reduction of the interest you pay and will help pay off your mortgage faster. 

Reduce Your Interest Rate

To do this, the first step is to compare your current home loan to see if there are cheaper options in the market. This comparison must be a ‘like-for-like’ comparison. So you must compare a loan with the same features as your existing mortgage. 

Then once you find a few competitors with better rates, contact your existing lender. See if you can negotiate with them. You’ll be surprised, they want to KEEP you as a customer. 

If your lender won’t negotiate with you, then it is worth considering switching loans. Speak to a qualified mortgage broker and they will be able to provide you with an appropriate recommendation. 

Reducing your interest rate comes with obvious benefits. Your repayments reduce and therefore you pay off your home loan sooner. 

Increase Your Repayments

Now you have reduced your interest rate, it is a good idea to keep the same repayments that you were paying before the rate reduction. This way you will pay off the mortgage faster. This can save you thousands in interest and reduce your loan term. 

This works also If you are on a variable interest and interest rates drop. If your rate drops, keep the same repayments you were making. 

Applying these 4 simple tips, you will be on your way to repaying your home loan faster. This will save you money in the long run.

If you’re after more tips related to Property Investment, you should join us at our next Property Investor Night and meet with our wonderful Coaches. You’ll be able to ask them any question you want and it’s a free event!

Book your seat here.  

Taking thirty years to pay off your home is the old fashioned way of doing it. Nobody needs to take that long and there’s a very simple way that anyone at any point can start to pay their home off faster.

Let’s have a look at how much it actually costs to own a property and take thirty years to pay it off. It might give you a bit of motivation and get you fired up about getting that mortgage down fast.

Let’s take a four hundred and fifty thousand (450,000) dollar mortgage on a property and take 30 years to pay it off, with an average interest rate of about 6.25% over those 30 years.

It would cost you in total, to pay the house off and pay the interest: $997,461 to pay that property off over the thirty years of the loan.

It would cost you $547,462 in interest on that property plus the principal amount borrowed. That’s over 120% on top of the original loan, just in interest. Pretty crazy, right?

It’s not all terrible news! If we just understand how to do things a little bit more efficiently than the average person, we could be paying homes off fast.

Tip #1 – Make fortnightly payments

The first tip I want to give you is pay your payments for your mortgage fortnightly rather than a monthly payment. Most people are on monthly. If you pay your payments fortnightly, it ends up calculating that we make an extra payment each year, because of the fortnightly calculations. That alone helps you pay off your home far sooner and far quicker.

If you do fortnightly payments on this mortgage, you will save five years off your mortgage. Now you go from 30 years to 25 years while saving yourself $121,000 in interest. That’s more money in your pocket, not in someone else’s pocket! That’s an awesome guaranteed saving which I think is a great strategy and an easy one to go and apply immediately.

Tip #2- Use an offset account

Make sure you have an offset account set up on your mortgage. You need all of your money either making you money, or saving you money.

Let’s have a look at what happens normally. Someone will have a stand alone savings account. But it’s not really a savings account, it’s a “losings account” because of the way it’s structured. Your wage goes into your savings account, then you make the payments for your mortgage from that savings account.

Additionally, interest that you make on the money in your savings account is very low, on average about 1.5%. Last year, inflation was about 2.5%, so technically money sitting in your savings account has lost 1% while sitting there, hence, the term “losing account”. Your cash went down not up!

With your offset account, every single cent you have spare should be in this account. If you have $10,000 sitting in your offset account instead of your savings account, instead of losing you 1%, it would have saved you 6.25%. Guaranteed savings, tax free as it’s not an earned income. Interest is calculated daily so every day you move money into your offset account, will have a compounding effect over the years and help you pay your home off even faster!

Tip #3- Use your positive cashflow property wisely

The third tip to help you pay your home off fast is to make some extra payments. Look at where your money is and make sure you’re getting the most out of that money. A lot of people have some equity in their home that they could buy an investment property with. If that investment property is positive cash flow after tax, it will give you money to then make extra payments back into your mortgage.

An extra $500 payment can save you 16 years and $206,000 in interest!

If you do have some equity in your place of residence, your home, to be buying more investment properties, you can begin to accumulate multiple properties that are positive cash flow after tax. Thus enabling you to put more money back in your mortgage at a faster rate.

Simply, a five hundred dollar ($500) payment regularly to your mortgage can save you sixteen years. Imagine the compounding effect of multiple $500 extra payments on your mortgage.

If you look at the bigger picture a $1000 repayment extra to your mortgage each fortnight would save you twenty years off the mortgage above, that’s $275,000 in saved interest!

Use these three quick tips on how to make sure you pay your home off fast and actually get there quickly.

*Bonus tip – Get rid of bad debt

Sometimes we’ve got a credit card which is bad debt and not efficient in any way. If we can get rid of that debt, the extra payments we were making on it are forwarded to the mortgage. One of the wisest strategies to get ahead as a property investor is get rid of your debts fast. I’m not a big fan of having massive non-income producing debt, I call that “bad debt investment”. Investments that are making you money, investments that are getting you an income, that’s the only debt you want.

That’s debt that leverages some capital growth and some cash-flow. Unfortunately the home that you live in is typically non-income generating so in the terms set out above is bad debt. It’s not tax deductible either, so we need to reduce that debt quickly so we can be wealthier in the future. As a property investor your aim for retirement should be to have limited debt and all of your assets delivering income!

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Studies of habits and their close cousin, willpower, have been done, giving us insight into how people form – and keep – habits.

Did you realise that science shows our habits are “etched” into our brains?

Once a particular action or set of actions have become a habit, they create a neural pathway that reinforces and maintains our behaviour.

While this is fascinating in itself, what’s important to consider is that science also shows us how to build new neural pathways of good habits.

Good habits that can, for example, help you create the life you want to live.

For example, let’s say you’ve decided to build wealth by investing in houses. How would you get started?

You could find an agent, plunk down your life savings, cross your fingers and hope for the best, or you could learn how to study a marketplace, what to look for in terms of property type, etc.

Which tactic do you think would give better results…more assured results?

Obviously, the more you learn about investing in houses the better your chances of success, right?

So what does this have to do with habits?

When you nurture those actions that lead to wealth creation they’ll soon become second nature, leading you to automatically (habitually) do those things that can help you build wealth.

For example, wealthy individuals are known to live below their means. They don’t have to think about it, they simply spend less than they earn, save what they need and invest the remainder.

If they’re investing in houses, they make it a habit to keep abreast of their investments and routinely look for ways to improve their returns.

MAKING NEW HABITS

Contrary to conventional wisdom, it doesn’t take 21 days to form a new habit.

It takes a MINIMUM of 21 days.

More often, individuals report that it takes as few as two months to as many as eight months – sometimes longer – to form a new habit.

While this might sound discouraging, it’s important to note that research shows forgetting now and then does not impact your ability to form a new habit.

What is important is to stick with it.

KEEPING YOUR NEW HABITS

Consider investing in houses.

You’re obviously going to need to do a good bit of research to be successful, right?

And all of that research takes time and effort, so unless you’re one of those rare individuals who has nothing to do all day but sit around, you’ve got to find a way to fit yet one more thing into your already busy life.

How could you possibly add one more thing?

By attaching your new habit to something you’re already doing.

Let’s say you’ve got the habit of getting up early before heading off to work. You sit down with a cup of your favourite beverage and hop onto the net to read your emails.

What if you added a bit of property research to your morning routine? Instead of delegating your research to only the weekends – or the days you’re off work – you give yourself more time to study the markets and look for investment properties that are a good fit.

Take some time and think about your situation and goals. Are there habits you have right now that you can tie new ones to?

Start small…trying to make too many changes at once is not only overwhelming, it won’t help your new wealth creation habits stick any better than if you’d simply added them one by one.

Just like investing in property, forming new habits is a lifetime process, but unlike property investing, you have complete control of the outcome.

If you are interested in discussing similar matters with like-minded property investor people and professional coaches, feel free to join us at our next FREE Investor Property Night near you!

Property Investing

To help ease the learning curve a bit it’s helpful to have a few hard and fast rules to keep the process moving along towards a great result.

The following 5 rules are followed by countless individuals who have bought property for investment purposes:

1. Pay under market value with add value potential (if possible)

To get property at a discount consider the following.:

• Why is the vendor selling? Do they have an offer on another property? (could mean they want to sell quickly)
• Study the market; what makes the property desirable? Is there something that I can do to add value and increase my yield? Is the market bearable and sustainable?
• What blemishes can be used as leverage to get a better price?
• Speak with local agents to get a good feel for the suburb.

2. Look for properties with good yields and cash flow

Look for an investment property with a yield of at least 5% for the best results.

Here’s how to quickly calculate the gross rental yield of an investment property.:

• Weekly rent x weeks in the year = Annual rent/purchase price x 100

Example:

• $475 pw x 52 weeks = 24,700/$450,000 x 100 = 5.49% gross yield

Of course your true (net) rental yield will deduct your investment property expenses such as strata fees, utilities, property management fees, etc. from the annual rents.

Annual rent – costs (excl. interest)/purchase price x 100 = net yield

So as you can imagine, the higher your gross yield, the better your net yield will be.

3. Buy property for investment in other states

We have many markets all across the country, each of them with their own individual nuances (e.g. popular suburbs, employment outlook, demographic, etc.).

This is why it’s so important not to get caught up in the claptrap and gloom and doom that permeates so much of the information we come across.

If your backyard is on the tipping point of growth, then by all means invest where you know, but if you really want to experience faster growth, you’ve got to learn how to invest across state lines.

4. Outsource where practical

That’s why it’s vital you make the most of the time that you have available by outsourcing tasks; especially time consuming ones that can be done by someone else.

Following are some examples of tasks you can outsource.:

• Property management
• Cosmetic renovations
• Landscaping
• Home staging
• Cleanup and removal services

5. Consider “rent-vesting”; renting while buying investment property

There are both advantages and disadvantages to renting while buying a property for investment.

Following are some pros and cons surrounding this strategy.:

These were just some of the tips and strategies that property investors need to learn to grow a strong investment property portfolio.

One of the best things you can do for your property investing business is to find a successful property mentor to help ease the learning curve.

This can speed up your results because you’re not travelling down the wrong path and making mistakes that cost you in both time and money.

If you are interested in discussing similar matters with like-minded property investor people and professional coaches, feel free to join us at our next FREE Investor Property Night near you!