Some people plan to be property investors. They strive to educate themselves around potential pitfalls so they can mitigate risk and map a seriously considered strategy to accumulate a financially rewarding retirement portfolio.
Others however, fall into real estate investment purely by happenstance. Which could account for why we tend to hear more stories of failure than ascents to the top of the property ladder.
The accidental investor
Perhaps you find your perfect match and settle down at a time in your lives where you’re both established homeowners in your own right. Or you might decide to start a family and upgrade the inner urban apartment acquired as a young, professional couple for a larger house with a backyard.
In either scenario, the potential to step up a rung and begin your journey to financial independence with the accumulation of high growth housing assets should at least be explored.
The only proviso being…before repurposing any existing home into a rental property, you need to carefully consider how your past dwelling might translate into a future financial investment.
Rather than jumping blindly in, it pays (literally) to do your homework on any property you might be contemplating as an addition to your future fund, be it your first or your fiftieth.
So to start you off, here are 3 things to ponder when you stumble upon the opportunity to grow a property portfolio…
- The split
‘Let it go, let it go’…aside from the likelihood that you’ll now have that Disney song stuck in your head for the rest of the week (you’re welcome!), saying goodbye to the past that’s tied up in your property can be tricky.
As a former singleton this could be the ‘crash pad’ where your independence was established and the trappings of youth enjoyed. If you’re a couple or young family, other emotional attachments will tug at the heartstrings.
When you have difficulty getting past the sentiment, you may fail to see the necessary sense and reason around your investment decisions. You could be far too precious about tenant selection or expect an unreasonably high asking rent for instance.
It’s very likely you’ll experience a vast array of emotions when it comes to re-purposing your bachelor or bachelorette pad, or generally changing the use of your property from a home to an income producing asset.
The key is to recognise heart from head instincts and remain pragmatic when it comes to determining how the property will work in an investment portfolio.
- Is it right?
Have you created a home that has your unique stamp indelibly imprinted on it everywhere you turn? That lilac and orange colour scheme might work really well for your personal tastes, but what about the tenant pool you’re hoping to dive headlong into?
Chances are you’ve invested time and money to create your personal space. But you have to remember tenants are less likely to be quite so precious about your dwelling. It’s not their time, energy and emotions after all.
Importantly, the property needs to be maintenance and user friendly, with a broad appeal to a large tenant market in a high demand location. This translates to good cashflow in consistent rental returns, alongside generous rates of capital growth.
- Your finances
If you’ve paid down a lot of your mortgage and are thinking of using the equity in your home to raise funds for a new principal place of residence, you might find that financially, everything is around the wrong way.
What I mean by this is that the property about to become your investment will have a small tax-deductible debt, while the property you’re relocating to will have a large, non-tax deductible debt.
Consider whether taking advantage of the Capital Gains Tax exempt status of your old home and selling up to ‘withdraw’ your equity, is a better option.
Better yet, why not talk to a professional, experienced mortgage broker about how to best structure the finance around your evolving property portfolio?
Whether you’ve fallen into real estate or are an intentional investor, a little bit of help can go an awfully long way to ensuring the sustainability of a successful, wealth producing property investment portfolio.
Click here now to speak with one of the team here at Trilogy Funding, where investment finance is never left to chance.