I've said it before: it's always been difficult to buy your first property.
No matter whether it was the 1960s, 1990s or now, scrimping and saving for that deposit takes discipline and dedication.
Now I admit that with property prices around Australia at new peak levels in many locations, and interest rates still high for a while, saving the necessary funds to buy a property has become harder still.
And let me be frank: you'll probably need around over $150,000 in savings plus good serviceability to buy an investment-grade property today.
What do you think about that statement?
How you get those funds is a topic for another day...
Instead what I want to talk about is why you need six figures behind you to have the best chance of becoming a successful property investor.
Cheap won't get you rich
Here's the thing: some investors think that buying cheap properties will make them rich over the long term.
Wrong!
Why is that, you ask?
Well...Cheap properties will always remain that way (relatively) because they are inferior products or in poor locations.
They're the type of properties that appeal to fewer potential buyers.
And that means that their prices remain subdued because there isn't a strong demand to drive prices up.
It's the simple supply and demand equation.
Investment-grade properties, on the other hand, cost more and will always do so.
They're the opposite of cheap properties and will always be the beneficiary of more demand than supply, which will result in strong capital growth over the years.
What do I mean by investment-grade property?
Well, I mean that they're properties that:
- Appeal to a wide range of affluent owner-occupiers;
- Are in the right location;
- Have street appeal as well as a favourable aspect or good views;
- Offer security as well as off-street car parking;
- Have the potential to add value through renovations;
- And have a high land-to-asset ratio.
Let's face it: with a list of attributes like that, it's no surprise that investment-grade properties will always be more expensive.
And that is why you should buy them.
Money matters
Let me be clear: $150,000 will help you buy the right type of property but it can also help you hold it for the long-term, too.
You see, you need cash flow (and that means cash!) to hold properties for the length of time that it takes for the power of compounding to work its magic.
I've seen far too many investors get in over their financial heads by over-leveraging.
Then when something bad happens – like job loss or a property downturn like we experienced a few years ago– they have no choice but to sell at the worst possible time.
In other words, they sell because they have to and they generally lose money because of it.
If they had a cash buffer behind them, though, they would've had a better chance of riding out any short- or medium-term issues.
You always want to sell at a time of your choosing – and preferably one that's many years (or decades!) after you invested in the property to start off with.
Investment grade or bust
The lesson from all of this is that if you don't buy an investment-grade property then it's likely to go horribly wrong at some stage in the future.
Don't believe me?
If you don't buy an investment-grade property you'll get the same result the majority of investors get, which is not a pretty sight.
Did you know that 50 per cent sell up in the first five years -in fact more investors are selling up within 3 years nowadays?
And of those who stay in real estate, 92 per cent never get past their first or second property.
They're sobering statistics, aren't they?
It might sound strange coming from me, but it's usually better to do nothing than to buy a secondary property.
Wait until you can afford to buy a superior property and don't believe the "get rich quick" schemes.
In fact, if it sounds too good to be true it is.
At the end of the day, successful property investment is all about getting rich slow.
So, be a property turtle, not a hare, and you'll be ahead of the pack in no time.
