Achieving financial freedom is a goal for many Australians. And while there are many different ways of getting there including investing in shares and business, a lot of Australians like to build their wealth through property.
That’s because “bricks and mortar” is a tangible asset – you can see and touch your asset, unlike shares. And while property is more expensive, you can use leverage to maximise your returns.
However, to build wealth through property, you’ll probably need to assemble a portfolio with multiple properties. That takes time, patience and a solid plan. For as Benjamin Franklin once said, “If you fail to plan, you plan to fail.”
So here’s a guide to building wealth through property.
Treat your life like a business
To get started on the property investment ladder, you first need to save for a deposit. One of the best ways of doing that is by running your life as if it were a business. That means keeping track of all your incomings and outgoings. Once you’ve identified where all your money goes, look for ways to cut back on your spending so you can build up your savings.
Invest your savings in quality property
When you buy investment property, it’s important to choose the right property at the right price. Unlike buying your own home, this means basing your decision on financial facts such as market value, location and rental demand rather than emotions. As such, it’s often a good idea to talk to local real estate agents in the area you’re thinking of investing in as part of your market research.
Don’t jump into a purchase without doing your homework, as that can often be a recipe for disaster.
Start saving towards your next property
Rome was not built in a day, and neither is a decent property portfolio! So, once again, it’s time to buckle down and save.
Invest in another quality property
You can either use your savings to fund the deposit or pull out equity from a previous purchase.
Equity is the difference between your property’s market value and the balance of your mortgage. For example, if a property is worth $750,000 and you have $250,000 left on your mortgage, then your equity is $500,000. You can leverage this equity by taking out a loan against it, which can be used as a deposit on your next property purchase.
Now repeat the process
Property investment is a long-term strategy rather than a get-rich-quick-scheme. So while it might take time to build a sizeable portfolio, taking it slow and steady is often the best approach.
A word of warning
Every investment carries some risk to it, even property. As such, you should always maintain financial buffers, plan for worst-case scenarios and never take on debt you can’t repay. It’s a good idea to watch your cashflow carefully and budget for the unexpected – be this repairs or covering rental shortfalls for an extended period of time.
Building wealth through property won’t suit everyone, but done right, it can be a successful strategy for some.