How To Add A Property To Your Portfolio The 10x Way
On today’s episode,
Bernadette is going to be talking about how to add a property to your portfolio the 10x way and learning the strategies to achieve that goal.
Listen to Episode 44: How To Add A Property To Your Portfolio The 10x Way
Podcast: Download (Duration: 12:41 — 13.45 MB)
- The process of capturing a high cash-flow and a high growth property
- Buy a property that has significant growth over a period of time
- Buying property in a capital city guarantees a double in value
- Buy a property at the right price
- Apply a high cash-flow strategy that will put money in your bank
- Buy a property that has the potential to increase its value exponentially
- The importance of depreciation in a property
- The rinse and repeat process that will earn you money
01:05 - Buy a property in an area that has significant growth
02:47 - Buy at the right price
04:23 - What is a high cash-flow strategy?
07:00 - Buy properties with potential growth
08:00 - Work with your accountant and quantity surveyor
09:16 - The rinse and repeat process
10:04 - The name of the game
10:30 - Financial Freedom...Against The Odds
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“If you pay too much for the property you will spend 2 or 3 years at least waiting for it to come up to the value that you paid before it can start growing and giving your return.."
Well hello, it's Bernadette and in this episode, I'm going to be talking about how to add a property to your portfolio the 10x way. Most of you are interested in growing wealth as quickly as you can and renovating and high cash flow strategies play a big part in that. But often people think, "Oh well I'm going to buy a property and renovate it" they just don't put enough thought into the type of property to buy. And so end up doing the same old same old.
Yes, you may do a bit of renovation but basically it's the same problem. So we want to get out of that mindset and start thinking a bit differently. I'm going to walk through the process to actually find that unicorn. We want to capture high growth and we also want to capture high cash flow so that we've got the best of both worlds. And so that you've got a property that puts money in your pocket rather than bleeding you dry. Okay, let's get into it.
I've got 10 points to make. Now before we even think about buying a property you need to start thinking about what area you're going to buy that property in. And first and foremost you need to make sure that you're buying the property in an area that's going to grow significantly over your period of ownership.
Now where you are in the journey will determine where you buy to some extent. So if you're in your 30s you've probably got 20 or 30 years for this property to grow as you can afford to, I'm not going to say make mistakes because nobody wants to make mistakes but be a little bit less anxious about it. However, if you are in your say 50s you want to be much more pinpoint and get a property that's really going to deliver the goods.
Now historically over, I don't know how many decades capital cities with exception to Perth and Darwin have delivered basically a 100% growth per decade. So if you bought something in a capital city and waited a decade you're pretty much guaranteed that that property is going to double in value. And that's the sort of area we're looking for, we're looking for somewhere that is going to double in value at least every decade.
But if you're a bit more conscientious about your research you can probably find areas that are going to grow more than that in the immediate future. They might have been through a long lull and be about to boom. And so getting that early growth would really help you, I guess pull your cash investment out of it, your deposit and your reno costs and go again.
Anyhow, you may engage someone to do that for you or you might consider a capital city. The next thing to do is to make sure that you buy at the right price. Now, this means at or below market value and if you don't know what you're doing you probably don't even know how to determine what market value is. It never fails to amaze me the number of people who will buy a property without even the bare minimum of information not even access to something like RP data. And that is like flying blind because unless you know the sale prices of the properties surrounding your property you've got no idea of knowing what the going rate is.
I would strongly recommend that if you're not willing to do at least that level of due diligence and probably a lot more then you should be going with a reputable buyer's agent. Because if you pay too much for the property you will spend 2 or 3 years at least waiting for it to come up to the value that you paid before it can start growing and giving your return.
The next point is you want to be able to apply a high cash-flow strategy so that it's putting money into your bank. Most properties when you first buy them will be costing you money. It's very rare that you'll buy a property that is cash-flow positive. In real terms, they may be cash-flow positive on paper but they're probably not in reality. You wouldn't be able to apply a high cash-flow strategy to that property.
What is the high cash-flow strategy? Well, it could be short-term rental or Airbnb, it might be affordable accommodation. It could be a dual key. All of those strategies are good for really increasing the cash-flow exponentially. But of course, if you're planning to apply that cash-flow strategy it may have a bearing on where you buy the property. For instance, Sydney has some laws coming in that's going to limit the number of days you can have your property on short-term rental to 180. So you might avoid buying in Sydney and maybe buy somewhere you're not restricted by those laws.
In terms of affordable accommodation. In New South Wales, we have great legislation called the New Gen boarding house. Well, it doesn't require that you build new you can convert an existing. In Victoria, they have great rooming accommodation legislation that you can utilize on an existing properties. You might look at maybe buying in Victoria.
You really need to align the area that you're looking at buying not only be looking at its potential growth but also look at how that area impacts the strategy that you're planning to apply in terms of cash-flow.
Which brings me to the next point. You need to buy a property that has the potential to increase its value exponentially. Now that may be through adding a bedroom, you might be converting to a New Gen boarding house. It might have a land component that you're able to separate off and get a block of land for free. But you want something that's going to increase the value of that property exponentially. And the reason you want that is so that you can decrease the leverage. If the property goes up in value by virtue of the renovation or whatever you do to it. That means that by comparison that the loan is less, proportionally less.
And so you will get to a point much quicker where you have got sufficient equity into that property to be able to revalue, take some money out and move on. Often people will look at their first investment and they'll think, "Oh you know I'll just buy a little unit here. That's a safe way to get started" But in reality, it's not and it's a dead-end way in lots of cases to get started because you can't do anything with it unless it's got a potential to increase the bedroom count. You may be able to put it on Airbnb but sometimes that's problematic in apartments, too. But there's nowhere to go with it. So you're really stuck with just living with the organic growth which you have no power to change. Really think about what you're buying and make sure that you buy potential.
Now the next 3 points are around depreciation. Buildings are depreciated over 40 years so if you look at buying something that's about 20 years old it still has 20 years left of the building depreciation. That's a good way of making sure that you max out your cash-flow and often a 20-year-old building will provide a really good return on your renovation spend because they've got good bones. And they're to the point where they're pretty tired and will spark up really well with just a fresh coat of paint and some new finishes. Think about the age of the building that you're buying.
The next thing to know is that if you buy a property and you intend to have it available for rent, you renovate it to rent. There are circumstances where you can actually write off the things that you take out of the property when you renovate on your tax . You need to work with your accountant and quantity surveyor to make sure that you stick on the right side of the law with this one. But it's also another way to be putting money into your pocket rather than just spending money on the reno.
And the third depreciation point I want to make is that if you own the property then when you will be buying all the appliances and cabinetry that you put into the renovation of the property. Then you are able to depreciate that's called plant and equipment. So you're covering all areas of depreciation and that will certainly be putting money into your pocket every year at least for the first 5 years after the renovation that you own the property. Once again make sure that you discuss with your accountant and quantity surveyor to get your facts right.
And then the last point I want to make is that once you have purchased the property in the right area you've got it cranked up, you've renovated it, you've got it cranked up on a high cash-flow strategy and it's bringing in the money and it's growing in value. Then the next thing to do is to go along to get your financial institution and re-value the property. See if you can refinance. Take some money out. And use that money to start your next property and then repeat the process. We call it rinse and repeat. Basically what you're doing is setting up a whole lot of little money machines. You've got each one of them generating a positive cash-flow and it's growing then they're all putting money into your pocket rather than taking money out.
And over time they will grow to be something incredibly substantial and eventually replace the income that you have now so that you don't have to go to work. And that's the name of the game.
Okay, we're short and sweet today. And before I go I just want to remind you if you've not got your tickets for our event "Financial Freedom... Against The Odds" then we still have standard tickets across the board in both Sydney and Brisbane. I don't have any VIPs left in Sydney I've still got a few in Brisbane and so if you've not got your tickets please make sure that you grab them this week because we've only got a week to go and I'm really looking forward to meeting you in the flesh.
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