Financial independence is something we all dream about, especially in today’s often challenging and uncertain economic environment. We become financially independent when the income generated by our assets exceeds our day to day living expenses. Sadly many of us do not and will not have sufficient assets now and when we retire (for instance through our superannuation) and hence don’t or won’t have sufficient income to help provide for a decent standard of living. And so we have to go to work to earn enough money to pay our bills and hopefully have enough left over to be able to invest for our future. And until we do have sufficient income producing assets it means we are dependent on someone else, like our employer, for our financial wellbeing.
Thankfully there are strategies we can adopt that will help build these all important income earning assets and one of them is residential property investment. If done correctly property investment can provide both cash flow and capital gain thereby providing an ongoing income stream and a welcome cash lump sum when the property is eventually sold. However, if done incorrectly it can result in significant financial problems and in the worst case, financial ruin.
So to help you become a successful first time property investor, here are the first five of my top ten tips to help you along the road to financial independence:
1. Set clear financial objectives
Never invest in something just because someone said it was a good thing to do. And investing in property is no different. Take a step back and make sure you have set yourself clear financial goals. For starters, you have to define what they are and then ask yourself “will investing in residential real estate help me achieve them?” You have to set tangible targets around things like return on investment, cash flow and timeframe. You also need to consider risk and liquidity factors.
2. Treat your property investment as a business
Owning an investment property is like owning a business and you’re the CEO. You have to make sure your business is structured correctly, is supported by the right leadership, resources and technical knowledge and experience, is financially viable, is meeting its financial targets, complies with government rules and regulations and is being well run and managed. If you don’t think you can deliver on these requirements yourself than you need to hire someone who can, or think twice before investing.
3. Seek help
Before taking on what will be a big financial and emotional commitment make sure you learn about and fully understand the business of property investing. Remember a little knowledge is a dangerous thing so don’t invest if you don’t know. And if you don’t know than get advice from sources like trusted family and friends (who may have prior investing experience) and independent advisors like accountants, property advisors and financial planners. You should also read widely and follow market trends in newspapers, specialist property publications and online.
4. Research the market
As part of your education process you must research the market and get as much property data as you can, especially in the areas you are thinking of investing in. Your aim is to ensure you’re buying the right property, in the right place, at the right time and at the right price. You should register and talk with local selling agents, go online and visit property websites which often provide valuable and free suburb and property information. You can also purchase cost-effective property and investment reports from onthehouse which will help ensure you’re armed with up-to-date information on market trends and property valuations.
5. Be patient and invest sensibly
It goes without saying that buying the wrong property will deliver the wrong financial results so don’t rush. You have to balance two competing requirements – what you want and what your potential renter and (ultimately) buyer wants. So take your time andand consider all options. In particular, put yourself in the shoes of a potential renter and ensure the property meets their specific needs – this includes charging affordable rent, before you buy.
Source: onthehouse.com.au