First Time Property Investing
Blog

Want more know how? Check back regularly for insights and updates on building your portfolio, upcoming events and more.

How much to get started in property investing?

How much to get started in property investing?

29th March, 2018

For the first timers, this is how we would go about it getting into property investing, after looking at your income, your existing assets, your future earnings potential, your future plans, current debt… pretty much an all encompassing review of your current situation and where you want to go.

If for example, you have never invested in property, have currently no assets, have a steady job with room for growth, this scenario may be your starting point into property investing:

You purchase a $200,000 property, on a 90% loan. Dependent on your earning potential and your future plans, we would discuss whether 80% would be a better option. (Lending terms are based on a number of factors – working with your property strategist / coach and mortgage planner will outline the options available and how may be able to leverage various components to achieve a more favourable outcome – e.g. interest rates, loan term, agreed loan amount as a percentage of the purchase price).

What a $200,000 property looks like today

2 bedroom Townhouse 25kms from Brisbane CBD: 

2 bedroom unit, 30kms from Adelaide CBD: 

Don’t limit yourself to your own backyard. There are higher growth rates to be had, if you broaden your view to encapture a lot more markets. Not only does it give you more options, but if you continue to build a property portfolio it will help with managing costs and risk.

What your Property Investment financials could look like

Please note there are assumptions made on interest increases, rental increases, property values, average purchasing costs. I have been relatively conservative on the equity growth and rental growth.

What this table shows you is a total line overview of the opportunity of property investing. In a nutshell if you keep the property for 10 years, you will be  $140,000 ahead. This is a very conservative number. On the last 10 years, if you have made good purchases: taking into consideration market growth, property type, price, you would be achieving $250,000 after 10 years.

On top of this, if you purchase a property you can add value to, through renovations, granny flats, etc, you will see this number continue to increase. Again if you purchase correctly and understand the optimisation opportunity.

To get here you need to start with $50,000. Now that feels like a large amount of money. However, there are a lot of options to look at to get you there. Parental guarantees could be  a good option, for example, (if you go down this path, ensure that you receive good advice from a trusted professional and that they are set-up properly), along with reevaluating how you manage your tax returns, reassessing your outgoings.

Property Price $200,000

PURCHASE COSTS (INITIAL INVESTMENT)

FIRST YEAR

Year 2

Year 3

Year 10

10 YEARS TOTAL

Stamp Duty

$5,855

$5,855

Lenders Mortgage Insurance, Solicitor Costs, etc

$7,500

$7,500

Buyers Agent

$11,000

$11,000

Property Investing Strategist / Coach

$5,000

$5,000

Deposit

$20,000

$20,000

TOTAL COSTS

$41,855

$49,355

ANNUAL PROFIT/LOSS

FIRST YEAR

Year 2

Year 3

Year 10

10 YEARS TOTAL

RENTAL INCOME

$250 x 50 = $12,500

$255 x 50

=$12,750

$260 x 50

=$13,000

$350 x 50

=$17,500

$150,000

$300 Average

Annual Costs – Allow 3% of purchase price

$6,000

$6,000

$6,000

$6,000

$24,000

Annual Loan Repayments on a 90% loan

$7,200

4% Interest Rate

$8,100

4.5% Interest Rate

$9,000

5% Interest Rate

$9,900

5.5% Interest Rate

$90,000

5% Average Interest Rate

TOTAL (Income less Costs

(-$700)

(-$1,350)

(-$2,000)

$1,600

$36,000

PROPERTY GROWTH

FIRST YEAR

Year 2

Year 3

Year 10

10 YEARS TOTAL

Property Purchase

$200,000

Equity Growth – Assume 15% in the next 3 years

$200,000 @

5% increase

$210,000 @

5% increase

$220,500 @

5% increase

$200,000 @

5% increase*

$129,000

Equity Growth

ESTIMATED VALUE

$210,000

$220,500

$231,525

$329,000

$329,000

*Compounding the growth each year for 10 years.

This may feel confusing, but don’t let that reason be the reason why you avoid getting into property investing. There are plenty of people that can help you. I specifically work with First Time Property Investors, walking them through every step, so they can confidently go into their second property purchase knowing so much more.

One of the best things I have discovered since working with First Time Property Investors is that once that purchase their first investment, they become a lot more confident talking about finance, investment strategy and numbers in general. A skill and confidence that transfers to work, business and future endeavours.

You cannot underestimate the value of what you will receive by learning through the process. Work with someone that has runs on the board, and someone you trust, to avoid ‘learning through bad decisions’ – you can take this learning from others – and avoid going through it yourself.

And if $200,000 may seem like a relatively small investment to you, but it gets you in the door, in the market, in the process, and as your investment grows, it could mean that you have 10 x $200,000 investments – that provide a value of $1.4million over 10 years.

11 Reasons why your first property investment is the most important one. 

 

If you would like to talk about getting started in property investing, or anything and everything property investing, lets connect.

Or check out my First Time Property Investing Program.

by Luke Moroney

Subscribe to the Mailing List

Get more know how. Sign up for Luke’s fortnightly newsletter to learn about upcoming events, tips and more.