I Wish I Knew This Before I Started Investing In Property

Written by Dave Johnson on January 29th, 2016

I Wish I Knew This Before I Started Investing In Property

When I bought my first property I thought I would just buy it and then wait for the money to just roll in!

Little did I know…

Most property investors I’ve come across tend to put their faith in this “pray” strategy.

They buy, hold, and then pray property prices will go up.

This is an amateur move and a dangerous way to invest!

What happens when prices fall, or your tenant stops paying?

Where would that leave you!

That’s why I decided to come up with one specific rule.

One that’s helped me build a profitable property portfolio over the years!

Today, I want to give you this rule…

 

Why Most Property Investors Have It Backwards

 

So, what is my rule?

Well, it’s pretty simple.

Make money when you buy.

That’s it.

Sounds a bit weird right?

I mean, aren’t you supposed to make the bucks when you sell?

Well with my rule, and two simple steps you can make your cash when you buy.

When I look at buying certain properties, I look for two main points:

  • Motivation in a seller
  • Equity in a home

If I can tick those two boxes, I’ll have a better chance of buying property below market value.

Let me explain using an example.

Let’s say Ryan Smith has a property is valued at R1,000,000 and his outstanding bond is R600,000. 

Now Ryan’s got a new job in Australia and is leaving the country in a few weeks.

Naturally Ryan wants a quick sale as he has to leave the country.

Ryan is now motivated and has equity.

So, say we now buy his property for R700,000.

Ryan walks away with R100,000 and we have just bought his property at 30% below what its currently worth.

Because we’ve bought his property at 30% below market value, that now gives us options and exit strategies.

If house prices fall, we’ll most likely still have equity which means we can still profit in a down market.

If you’re trying to figure out whether or not there’s the right equity in a potential investment, you need to ask the following questions:

1. What’s property worth today?
2. What’s the cost of the refurbishment (if any)?
3. What’ll the property be worth after the refurbishment?
4. What’s the outstanding bond amount?

Those should give you an indication whether or not there’s enough equity in the potential investment to make it worthwhile.

 




 



How To Make Money At The Right Time

 

Remember, you want to make money when you buy.

And by that I mean making sure that you’re heading into a good deal, so that even if things start going south, you can still get out with a little profit or even without losing anything in the deal.

When you look at buying certain properties, look for two main points:

  • Motivation in a seller
  • Equity in a home

And if you’re trying to figure out whether or not there’s the right equity in a potential investment, you need to ask the following questions:

1. What’s property worth today?
2. What’s the cost of the refurbishment (if any)?
3. What’ll the property be worth after the refurbishment?
4. What’s the outstanding bond amount?

Stick to these rules, and you’ll ensure that you make money when you buy!

Until next time, be bold and go build that property portfolio.

Dave Johnson Signoff

Dave Johnson
Analyst, The SA Property Investor
The Money Lab