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How To - Property Investment

How To - Property Investment

Where do you go to learn how to get started in Property Investment, this is the most difficult question newbie investors face when you're getting started in creating your wealth through property or real estate.

The facts are that most wealthy people have lots of their wealth tied up in real estate, and that because of their investment in assets that grow in value, their wealth continues to grow and get larger year by year. Property Investment is by far the simplest way to grow wealth, providing you have the education and knowledge to make the right investment choices.

New investors in real estate often make big mistakes because they didn't seek out any education before taking the plunge and sinking their money into what looked like a good deal at the time. So rather than their investment beginning to create growth and wealth, quite often it becomes a burden on their finances, taking money out of their pocket rather than putting money in.

This type of investment has been promoted by many as a tax benefit, but is quite often a slave master rather than a servant, and I highly recommend against any property investment which is taking money out of your pocket each week.

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How To - Property Investment

In my opinion the only way to invest in property is to make sure that the net result of cashflow each week is positive. By this I mean that once you have paid the mortgage payment, the rates, insurance, allow for vacancies and repairs and any other costs, the income on the property (rent) is able to cover everything and leave a surplus.

Now sometimes this is very difficult to achieve, depending on where you are investing. However there are strategies that I use even on properties which at first appear to have a huge negative cashflow, to turn the equation around into being positive cashflow.

It's all to do with the strategy and structuring of the investment. Here is an example, let's say that on initial analysis, after buying a $250,000 property with a 20% deposit (down payment) and say 3% to cover the purchase costs, you have a loan on the property for $208,000. Repayments on this loan interest only would be $280 per week at 7% interest. The rates, insurance and other costs are going to be about $100 a week, so this house would be costing you $380 per week and a normal rent would most likely be around $250 per week. In this example you would be losing $130 every week out of your pocket, now I would not call that a great investment.

So how could we change the strategy and structure of the deal to make it far more attractive? Quite simply I would offer to sell the house on a lease option, with option expiry in 2 years, with agreed sale at say $290,000 and weekly rent of $490. I would make weekly cashflow of about $110 a week and have a lump sum cashout in 2 years of about $40,000. There are of course lots of other details to take into account, but this is a very rough outline of how to turn a negative deal positive.

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