How to start as property investor, what strategies are used and how to combine capital growth, rental income, cash flow and tax deductions to make money?
Property Investor’s Strategies
How to start as Property Investor making money?
A fine line between making loss or profit
As they say—people who never made a mistake never made anything. If you look at the list of the richest people in the world, you will realize that most of them made their billions specifically in real estate. Many of these rich people started with nothing, some even as immigrants to get there where they wanted to be. Real estate is definitely a path to become wealthy if you find the fine line between making loss or profit.
As illustrated here, property investors split their activities in “passive” or “active” strategies (passive investor and/or landlord). It depends on people’s circumstances, but also because of low rental yields, constant changes of rules and regulations. Housing Politics are targeting investors and affecting landlords more than in one way like the definition of rent deductible expenses, taxation rules and government regulated tenancies services.
New Zealand’s taxation rules are defined on investor’s “intention” and object of frequent debates on investors versus speculators. Politicians use the media and people’s emotions to reach a wider audience of voters, not to solve people’s problems. In this way a shortage of housing is on the agenda of election campaigns for years.
Best strategy – capital growth or positive cash flow?
Capital growth is for investors with sufficient disposable income, who can even compensate negative cash-flow (negative gearing). I agree with people , who have built a substantial asset base and grow their portfolio through leveraging off the capital growth of their investments.
I see more beginners who go for cash flow positive investments. Cash-flow matters if you want to build up a landlord business. But you need to build up an asset base as well for expanding, financing a business and also cash-flow for paying the bills one day, when going as full-time investor by replacing the salary from a day job.
When starting as investor/landlord, here are few simple but complex rules:
#1—Be informed, prepared and professional
Dealing with humans you need not only humor, you need knowledge for making informed and professional decisions. You invested huge amounts of money and are liable if something goes wrong.
#2—Keep your paperwork immaculately, stick to your investment plan
For first-time investors/landlords follow these tips. Using a property manager/agent is a business decision, but not to give up control. Running investments on auto-pilot backfires at some stage. Your investment plan is your compass, understand that cash flow alone won’t get you out of the rat race.
#3—Believe in concentration of capital, resources and success
Resources are limited like time and money. If you concentrate your investment in fewer but better deals, success comes with lower costs and faster results. Leverage time, money and filter given advice.
#4—Communicate clearly and confirm in writing
Keep your tenants and team of people working for you informed. The importance of having written records becomes clear when resolving issues or giving evidence. Common disputes e.g. with builders are unfinished and substandard work, delayed completion and budget blow-outs. Check this link regarding quotes and what you need to set in writing before commencing work.
The lesson I learned
Higher yield properties are cheaper, that is why it is easier to purchase them for positive cash-flow. While they may give you short-term income, those rentals will never allow you to accumulate the equity necessary to become truly wealthy. Make informed decisions and draw the line between investing, trading and developing properties.
TIP: Use the article library and fill your blanks by browsing through our blog posts. You do not need to agree —keep thinking and follow your own rules. Good luck.
Property Investor’s Blog
Investor’s & Landlord’s Luck and Failure
Being or wanting to be a successful property investor, you have to start somehow, right? It does not matter starting by accident or purpose, each individual investor has a specific surrounding field to deal with. I do not believe in success just by copying people who have reached their chosen objectives and goals. Certainly they stepped up facing challenges head on but in a different environment than yours. Albert Einstein said “The one who follow the crowd will usually go no further than the crowd” and in reality the majority of people give up investing in properties at some stage. The desire to learn opens the road to success.
Homeownership vs. Property investment
Just to clarify at the beginning, often misunderstood — homeownership and property investments are not the same. In economic sense investments do produce income (Return On Investment - ROI). Ask yourself, what is the ROI on a family occupied home? An owner occupied house is an expensive liability that provides capital growth because of the land attached and is a common way to cumulate wealth, that is it!
Four ways for investors to make money
Property investors have got 4 options to make their money, to summarise: they use in combination capital growth (increase in value), rental income (yield), rental returns (cash flow) and tax deductions (negative gearing and depreciation allowances) to grow an investment portfolio.
Stay with me, I do explain these 4 areas in greater details in this series. Now, success or failure depends on how you individually use those strategies to benefit from. Is sounds complicated, actually it isn’t. All you need is common sense, willingness to learn by doing and take mistakes to adapt to changing circumstances. On your journey you will learn from professionals like your accountant, lawyer, agents and trades people everything to reach your goals. It is similar to having a good marriage. You don’t need to study the civil or relationship act as you work it out on the way doing it.
A quite important lesson I learned from the media and the “experts” you find everywhere. They just manipulate the market sentiment. You will notice that by comparing conflicting views. People are achieving goals and expressing views and nobody is wrong, the difference is the purpose why doing so. And lastly, paying for a coach or mentor to keep you on track is an individual need. If you want to maximise results like a professional champion for competing with top achievers in their fields, you will need deep pockets.
Klauster Blogs lead to a real person who worked as computer network architect for many years in different countries until retiring from IT and mastering a life as property investor and landlord.
The passion of sharing experiences comes from turning hobbies into income streams and business. Helping people to avoid pitfalls and to be free to choose has been satisfying and most rewarding.
The philosophy to treat life, partnerships and hobbies as an investment has helped people in our circle. Life is a dream with a deadline, happiness comes from making the right choices and having realistic expectations.
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