A financial advisor explains what you need before investing in property: stable cash flow, enough equity, and manageable debt. The video covers practical readiness factors and why timing matters for your financial position.
I always get asked by clients, when can I invest? When's the right time to invest? What do I need to invest? And so I just want to really spell out what are the key things I look for when deciding on when a client's ready to invest. First things first is cash flow. Any investment predominantly needs cash flow, whether you're investing into the market or actually investing into property. Very, very rarely will the rent from the property cover the mortgage plus the rates, plus insurances, etc. So if you're not servicing your current home loan and you're not paying at least $800 per month off your home loan, I'd probably say you need to keep focusing on paying down your own debt first, freeing up that cash flow. The lower your debt gets, the lower the interest gets, and therefore you're going to be closer to a position to invest. So, first rule of thumb, having $800 per month surplus, cash flow or savings. If you're not at that yet, keep striving towards that. That's the first checkpoint. The second thing is your equity position. I never really want to look to invest for clients when they have to borrow more than 80% of the value of the property, I. E. They have to go into mortgage insurance territory. So if you've got a $500,000 house and you owe $400,000 on it, you've got 20% deposit, which means you're out of mortgage insurance territory for your own home. But if you were to go buy an investment property, that means you'd be borrowing the full amount and have to pay mortgage insurance on that amount. That's usually around about 2% of the loan amount, which goes on top of the loan. And it doesn't help you or cover you or protect you in any way, shape or form. It's insurance the bank takes out against you because they think you're a high risk. So always make sure you've got at least 20% equity before you start to move onto your next property. The third thing I look for when it comes to investing properties is what's happening with the market. I don't want to be buying a property which is going to go sideways and not grow for three or four years. And I'm having to pay for the insurance and the rates and the interest on it. If it's not growing, a lot of the time, you're going to be looking for getting the market where you're not going to pick the bottom. But it certainly started moving already. So at the moment, I really feel that you've got Sydney and Melbourne have certainly done their run. I feel that they've got more downside than upside at the moment. Brisbane certainly peaking. Perth is probably going to be the first to rebound and I really feel that it's going to be a great market to look at next year. 2018. Adelaide is really starting to move now for the first time in about 10 years. So if you are going to be looking Adelaide would be probably the place to invest. That's where you will get the growth over the next two or three years. Otherwise I'd really be looking to invest in Perth in 2018. I feel that's going to be the first one to come out of its down market there. So timing of the market is critical. We don't want to be sitting on a property that's going sideways for three or four years. Equity. Make sure you've got at least 20% deposit saved or in equity in your current home. So you're not going into mortgage insurance and paying that cost for no reason. And then your cash flow. If you don't have surplus cash flow of $800 per month or $200 per week at the moment, I really feel it's best for you to focus on paying down your other home loan. The other factor there is also unsecured debts. If you've got any credit cards or personal loans or car loans, I'd really look at getting those out of the way first before I start putting money into investments. You really want to invest with surplus cash flow. If you've got other debts hanging around like credit cards or car loans, I really feel your surplus cash flow should be going into those debts. Because if you've got a credit card at 16% and you've got $1,000 to invest, if you invest that $1,000 into debt and put it into your credit card, that is exactly like you're getting a 16% return on that thousand dollars. So it's a little bit of a head spin. But investing in debt is the smartest thing to do. If you have unsecured debts at 10%, 12%, 16%, rather than investing into say the stock market, you might get an 8% return, but you're paying 16% on your credit card. Just doesn't make sense there. So they're the things I really look for to make sure that a you're buying at the right price in the right location and you're ready to it. It's not going to put any financial strain on you or the family because there's nothing worse than getting into an investment that affects your lifestyle. So hopefully that's helped and looking forward to moving you forward financially.
