How far ahead do you plan when buying an investment property?

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Expert Advice by Paul Wilson
08/07/2013

Whenever I buy an investment property, I’m always thinking about my end goal. This is a method of planning that I encourage all of my clients to use, because it helps you to focus on building a property portfolio that suits you now and in the future.

Sometimes, the end goal might be as simple as, ‘Buy and hold for the long term’. But other times, there are more strategic factors at play.

I think that too many investors take the opposite approach and get caught up in thinking about “the now”. How much money can I make out of the deal now? How much positive cash-flow can I generate now?

This type of thinking can be fraught with danger, as it leads to decisions that can cost you dearly in the future.

For example, because I’m always thinking ahead, I might buy a property on a large block of land that I eventually plan to develop. My end goal for the property is to subdivide the land and build a duplex on the back half of the block.

Right now, I don’t have the funds at my disposal to take on such an ambitious development. But I do have access to around $10,000, which is enough to cosmetically renovate the home and boost the rental income by $25 per week.

My plan for the property, in five to seven years’ time, is to draw from equity in my portfolio to fund construction of the new properties. At that point, I plan to sell both duplexes and use the profits to pay down the mortgage on the existing home.

This will leave me with a high growth, high value asset that is fully paid off at best, or that has a very low mortgage at worst. Either way, it will generate a generous positive cash-flow income stream for me that will last well in the future.

An investor who is focusing on the “now” would take a completely different approach. Instead of seeking out long-term opportunities, they look for investments that generate positive cash-flow from day one.

Fast forward seven years, and you can see the massive difference in results that we have achieved. While my strategy has left me with a house that I own outright (or thereabouts), the “now” investor has a property that has barely appreciated in value. Sure, it’s delivering a handy positive cash-flow income of $70 or $80 a week… but it hasn’t contributed any real wealth to the investor’s financial position.

I don’t know about you, but I know which position I’d rather be in! When you think about your own investments, do they stack up as investments for the future – or did you invest in properties with a mindset stuck in “the now”?

Paul Wilson is an Independent Property Investing Expert and the founder of We Find Houses, Educating Property Investors & We Find Finance. Paul has been educating and coaching investors since 2001. Paul provides valuable, independent guidance and support by teaching strategies on how you can invest successfully while protecting yourself from commission hungry sales agents and property spruikers. Protect yourself with knowledge, contact Paul today for a complimentary consultation on 1800 600 890 or email paul@wefindhouses.com.au

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Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.

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Comments
  • We Find Houses says on 14/11/2013 04:54:22 PM

    Paul Wilson will be happy to answer your questions through this forum thread!