You need to consider how many properties you will need, how to buy investment property and the value of the properties you invest in.
Property investments you can live off
Often people investing in properties want to be able to replace their income through their investments. But most times they don’t know how to buy investment property that will in reality meet their financial goals. Neither your property nor your rental and tailor-made strategy income will be sufficient to replace your income without a bigger plan. To turn your property investments into a viable income-earning machine you need to first grow an asset base of high growth properties and then reduce your loan to value ratios (LVR) to create an opportunity for cash flow, doing it this way can also be much more tax efficient.
How do you lower your LVR?
- Hold off buying any more properties so that while your bond amount stays the same, the value of your property investments goes up
- Lower your loan amount by either paying off the principal interest or selling one or two of your properties.
- Use the rental income of one property to subsidise the other and pay off your principal debt quicker.
How to buy investment property that creates wealth
You can’t expect to just live off the rent of your investment properties. The numbers very often just don’t add up. To do this you would need to have a substantial property portfolio. Remember, you need to use the money you make from your rental income to pay off your debt such as your loan amount, rates, taxes, agent commissions and maintenance. The amount you make after deductions and expenses only really makes sense if you have a large enough portfolio of properties. But how can you expect to grow your property investment portfolio to the point where you are making real money? Simple: by buying high growth properties and moving into cash flow by lowering your debt without paying it off in full.
It’s easier to have a larger value property portfolio with 50% debt than acquiring a portfolio of the same size with no debt. With 50% Loan to value you can apply for a loan from the bank, increasing this LVR but giving yourself extra cash to live off while growing your property investments. While this loan only pushes your LVR up slightly, during one year your properties will increase in value as will your rental income and by the end of the year your LVR will also be lower. You end the year with more than you started with.
How to build a property investment portfolio
To build your portfolio you need to be buying the right properties. Distressed properties and below market value properties are the best buys because their value will increase. The right properties to buy are:
- the ones that are scarce in the marketplace
- in the right location
- with the right price tag attached
- available at the right time in the property cycle
The easiest way to build a property investment portfolio is to have the right team of advisors on board to help you make the best, most well-informed decisions. Find your team and start building your property investment portfolio today for more wealth tomorrow.
Discover how to build your wealth with property investment Get free training videos & resources on the secrets of property investment in South Africa. Fill out the form below to gain instant access to our training resources.