10X your journey to financial freedom using property and renovating
I’ve been having lots of conversations this week with different renovators and investors and I’ve been having a recurrent conversation on reaching your investment goals through renovating.
One of the things we hear a lot is that property doubles every 7 to 10 years. While for some areas it is true, it’s not true for every area. Here are 10 tips to help you reach your investment goals using property and renovating.
1. Buy in a high growth area using data
The first thing when buying an investment property, you need to make sure that you are buying in an area that’s set for growth.
I am a “lazy investor” and I know my own 5 kilometers radius really well. But to understand where the growth is happening in the Australian market, you need to have your head in the data day-in-day-out.
What I do is I work with a property analyst – one who spends his time analyzing the data – so that I know where the growth is happening. For us, Sydney’s petering out, so we need to look elsewhere.
The first point is: make sure that when you buy an investment property, you get good data and you buy in an area that’s set to grow. You want that early growth so that you can get the equity up quickly. Once equity is up, pull your deposit out and go on and do the next one.
Starting Early: Generally, I’ll talk to lots of people. Some in their 30’s just getting started, or 20’s and some are in their 50’s that want to speed things up.
If you’re in your 30’s, then if you get started on this early, your goal to reach your investment goals through renovating is going to be super duper easy. As long as you take action because you’ve got 20 odd or even more years. If you buy in good areas then that will have doubled or quadrupled by the time you get to a point where you actually need that property.
But if you’re buying in your 50’s, there is still a huge opportunity to help meet your investment goals but you just need to be strategic and this is how I would suggest you do it.
We talked that the first thing is buying in high growth and we use data to find that.
The next thing is the type of property you buy.
2. Buy at the right price
Always buy at the right price because if you pay too much for your property, it will just slow the process down.
I don’t try to be an expert everywhere. When I work outside my area, I work with experts. I have a property strategist who sources my property and what I pay her comes back in bucket loads.
Buy at the right price. I like the vendor to pay my stamp duty if possible.
3. Buy a property that’s got potential to help achieve investment goals
Buy a property that you can exponentially increase the value of.
One of the ways that you can do it is by taking it up a category. If you’re able to increase the bedroom count and take it up from a one bedroom into a two bedrooms category, that’s going to be an instant increase.
Try to buy something that’s around about twenty years old. One that is sort of getting a bit tight and it’s still got some depreciation value in the actual building. This is help with your cash flow.
Therefore, buy something that’s got higher potential.
4. Renovate the property to increase the equity
The first reason to renovate is to increase the equity. The second reason is to increase the cash flows by increasing the rent. So, increase equity and increase cash flow.
You put in a deposit 10 – 20% on a property – depending on what you get, and you spend some money during the renovation and the legals and so on.
So, you’ve got a little bit of money in there – hopefully no more than around about 25% of the purchase price.
And the property you got is in a high growth area; you’ve renovated it, you’ve pushed it up a higher category and you’ve got good cash flow. The name of the game is to make sure that you can hold the property without impacting on your life.
5. Renovate the property to increase cash flow
You want cash flow without having to chip money in it to hold it. That’s the downfall with negative gearing.
Negative gearing is great in an area that’s got high growth. But it comes to a point in time where you can’t go any further because there’s just no more room – the cash flow runs out because you’re chipping in each time.
We want to get you to where you don’t have to go to work to keep up the payments.
6. Scrapping schedule
Now, because you have renovated there’s a whole lot of advantages. Often (but not always), you can engage a quantity surveyor and use a scrapping schedule to write off some of the stuff that you pull out.
I suggest that you use an accountant and a quantity surveyor to help you with this.
7. Depreciation of property and equipment
We had recent changes in the depreciation rules.
That means that if you’re buying a secondhand property, you can’t depreciate the plant and equipment in the same way you did before. However, if you are doing the renovation and you’re putting them in, then obviously you can.
So now by renovating you can depreciate the plant and equipment.
8. Use A Ninja Strategy For Your Cash Flow And To Meet Investment Goals
There are a few ninja strategies for years our cash flow – one of which is AirBnB.
We have an entire training program on that which explains how to setup your first listing. If I start here we will never finish!
9. Shared accommodation
Another thing that is quite profitable these days is shared accommodation.
There’s a rapidly increasing need for good quality shared accommodation. Interestingly, I’ve learned recently the biggest demographic needing this type of accommodation are women over 55.
There’s a massive need and even by following the government’s guidelines on what rent to charge, you can charge affordable housing rents and make serious positive cash flow.
Golden Nugget Alert: Now, if you’ve done all these things right, you should be in a position where you can finish the project. You can have it revalued and pull out as much of the cash that you’ve put in and go again.
10. Go again
Even if at the end of the renovation you haven’t quite got the ability or equity to pull it out – if you’ve bought in a high-growth area, in a very short amount of time that property will have appreciated so that you are in a position to pull your money out and then go through the whole process again.
If you do that, you should only ever have to find that initial 25% for your first property.
And then if you set them up so they don’t impact your day-to-day life so that they’re cash flow positive (and it’s a double whammy if they’re in a high-growth area and cash flow positive) then you just keep adding to your portfolio.
Then basically, what you set up is a lot of little money machines that are just continuing to grow.
Some people like to get to a point where they want to pay their mortgages off. I don’t know if that’s really that important provided they’re cash flow positive and as they grow, the loan sort of powers into insignificance.
And that’s how you meet investment goals and get to financial freedom using renovating.
If you’ve got any comments or tips you found that really helped you with this, I’d love to hear from you. So just add your comment below.
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