Could there be a connection between the fact that most first-time investors start out, intending to grow a large portfolio big enough to replace their incomes … and end up buying just 1 property and selling it a few years later?
I wonder.
One of the culprits is the idea that investing in real estate is easy.
You might have a friend at work who owns 3 houses, but isn’t any smarter than you.
Maybe they just got lucky.
Or that young couple in the media who just rolled up their sleeves, renovated a couple of houses and now they’re millionaires.
They were in the right place at the right time, and picked up a bargain.
Right, right? I mean that must have been it.
Well, no.
Buying An Investment Property, And Replacing Your Income Are
Two Different Things
Anyone can invest in real estate.
Go find a house nearby for sale, buy it, and go ask the local real estate to find you a tenant.
But not everyone can replace their wage with passive income with real estate.
That’s a whole different skill.
This is why Alliance Corp exists. It’s because there’s a world of difference between buying a single house and hoping and praying it makes you rich (it won’t) … and using real estate as the vehicle for creating wealth and multiple income streams.
So if you’re determined to go it alone (which you probably shouldn’t) at least listen to my advice before heading out.
Mistake #1: Not Having A Strategy
The best way to achieve a goal is to start with your goal, then work backwards.
It seems obvious, right?
Except most investors who go alone, don’t do this.
They start with step 1 … buy a property.
Then wonder … What happens now?
Having a clear goal, and the steps to achieve that goal is vital if you’re going to live off your real estate investments.
And once you have your goal, you work out what your financial picture will look like, and then you work backwards to figure out what steps you need to take.
What kinds of properties do you need at the end?
What do you need at the start?
What does your first investment lead to, so you can get your second, third and so on.
What will get you there fastest?
What tax and financial tools do you need to be using?
Your strategy gives you each step and the reason behind each step. This way you can make your first investment, and you’ll know exactly when you’ll be ready for your next one.
And so on and so on.
Then it’s a matter of following the bouncy ball, and as long as you have the discipline to see it through, you’ll get your result.
If you don’t, you’ll probably end up with just one property, and burdened with low capital growth and poor cashflow.
And you’ll end up like the 90% of investors who never get to their second property, and never replace their income from real estate.
Mistake #2: Over-Leveraging Or Under-Leveraging
Leverage is probably the best reason to invest in real estate.
You can use a 10% deposit, and control a property worth 10 times more.
However, you can easily get this wrong.
Being under-leveraged means not using your leverage effectively. It means being too slow to invest, and not building your assets quickly enough.
You could miss opportunities, and your journey will take a lot longer.
Being over-leveraged on the other hand can mean paying too much interest, not being able to secure new finance or paying a penalty for it.
Mistake #3: Buying The Wrong Property
One of the worst, and most common mistakes investors make is buying the wrong property.
You can easily end up with a property in a low growth area, or where rents are so bad you can’t even cover the interest and expenses.
You might miss out on a heap of depreciation (a tax benefit for investing in newer houses) or with a property which is a maintenance nightmare.
In our experience, out of every 100 properties on the market, we only ever consider 2% – 3% as properties we’d invest in.
Mistake #4: Ignoring Cash Flow
Capital growth might be what makes you wealthy, but cashflow is what keeps you in the game.
If you only focus on high growth properties, you might not be in the game long enough to make this work.
Being too negatively geared (no matter how nice it sounds) is a disaster in waiting.
You can be so close to the edge financially that it puts pressure on your household budget. And nobody wants that hanging over their head.
Especially when interest rates rise, a tenant leaves or some unexpected maintenance tips you over the edge.
Mistake #5: No Diversification
If you buy all your properties in the one area … and it goes up then you’re a hero!
But if that local area dips, if a major employer leaves, if the economy in the state tanks … you could be in trouble.
Your portfolio could stagnate for years.
Diversifying into different areas, states and even different types of property mean you even out the dops and troughs.
It also means being able to jump on opportunities around the country as the market moves, and get in at the start of booms as they happen.
Mistake #6: Not Structuring Correctly
If you buy all your investments in your own name, as most novices do you’ll almost certainly miss out on all sorts of tax benefits.
It can also mean your borrowing capacity is reduced.
It might not seem like a big deal at the start, but the bigger your portfolio becomes, the more important this is.
And by then it’s too late to fix.
Mistake #7: Not Doing Enough Due Diligence
If you think asking a local agent about an area is a good idea, you may as well ask the shark if the water’s great for swimming!
Independent and thorough due diligence can be worth its weight in gold.
Not knowing a market thoroughly can mean overpaying for a property, over-estimating the demand for rental properties, buying from a developer with a bad reputation, or buying in a location with poor capital growth and rental prospects.
It could even mean buying somewhere, and suddenly finding the market is swamped with new properties which tenants prefer over yours.
Mistake #8: Trying To Time The Market
Everyone wants to buy at the ‘perfect’ time.
Realistically, the perfect time is now.
Sitting on the fence means missing out on capital growth and rental income, and by starting your making your journey late, it will finish late too.
There are great opportunities everywhere, so don’t wait.
Find the best opportunity now and get in.
Mistake #9: Managing Your Own Property
Managing your own property seems easy enough.
And it can be … until you hit problems.
When you get bad tenants or hit with legal disputes you’ll regret not having a professional property manager on your side.
It’s a whole world of pain.
Besides, a property manager will help you avoid these issues before they even come up, and make sure you don’t make any emotionally driven mistakes with your tenants.
They’ll even help vet your tenants and weed out the bad ones, as well as find new ones every time an old one leaves.
And by having a local agent with their finger on the pulse, any cost savings you might make by managing your tenant yourself you’ll get back in higher rents anyway.
Mistake #10: Not Reviewing Your Portfolio Regularly
Do you know how much equity you need to be able to invest again?
Do you even know how much equity you have?
What about if you’re getting enough rental income?
And do you know what your next step should be and when you can take it?
By being on top of your financial situation, particularly your equity and cashflow positions, you can get back into the market as soon as possible.
And you’ll have more high growth assets working for you, and you’ll hit your income goal sooner.
Curious About What Your Personal Wealth Plan Looks Like?
There’s no doubt that having a personal plan will make your journey faster, easier and safer.
And everyone has an ideal wealth plan which is perfect for them.
But if you haven’t got yours yet, you don’t know what it looks like.
You’re invited to spend some time on a call with one of our Senior Property Wealth Planners to show you what’s possible.
They’ll help determine your ability to replace your income by investing in real estate.
They’ll map out an overview of what you should do, and when.
And of course answer any questions you have.
There’s no cost for this either.
We do it in the hopeful expectation that if you decide to invest, you’ll ask us how we can help you.
No obligation, no pressure.
First things first.
Enter your details below, and we’ll contact you to book in a time.
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