I Can’t Afford To Buy An Investment Property. Help!
If you feel like you can’t afford to buy an investment property then welcome to the club. Millions of Australians feel exactly the same way. However, every single day ordinary Australians are finding a way to invest in property and create financial freedom for themselves…and you can too.
Australian property is some of the most expensive in the world (compared to an average Aussie’s wage). Many people feel that they simply can’t afford to buy property because the cost is too high. Property prices also seem to be continually on the rise, meaning that by the time you have saved any significant amount of deposit you probably can’t even afford the house you were saving for because it has gone up in value already.
OK OK, enough with the doomsday talks…if you are scared that you can’t afford to begin investing in property then not all hope is lost. Regular people, with regular wages (even low wages) can find ways to build their property portfolio. You just have to be smart about it and extremely dedicated. In this post I am going to share 10 tips to help you find a way to begin investing in property.
Just Because You Can’t Afford It Doesn’t Mean You Can’t Afford It
Before I go into the 10 tips I just want to say that this post is FOR YOU. The truth is there will never be a ‘perfect’ time to invest in property, and you will probably never be able to afford it.
When I was 21 my wife was pregnant with our first child. We KNEW we couldn’t afford to have a baby (my wife was working 3 days and I was working 2 days) but we decided to do it anyway and FIND a way to afford it. After we had our daughter (I was now the ripe old age of 22) I had countless conversations with people earning 3-5 times what me and my wife earned and they were saying to me “I’de love to have a baby but I just can’t afford it.”
I knew without a doubt that they could afford to do it (because I was already doing it on less money), however, for them it seemed impossible. Take a second and think “Am I doing the same thing with property?”. Maybe you think you can’t afford it, but you could be one of those people who earn even more money than other people who have had success in property investing already…just keep that in mind.
Ok, into the 10 tips:
1. Lower Your Standards
BAM, I hit you with the big one first up. Maybe you live in one of the big cities (eg Sydney) and you are looking at house prices in your area. The fact is you probably can’t afford an investment property in your local suburb (My parent’s sold their 3 bedroom shack for over $800,000…there was no way I could afford to buy in that area). However, not all properties are this expensive.
You very well may need to lower your standards and look for something in a lower price range. Just 2 hours out of Sydney you can find decent (ok they need some TLC) 3-4 bedroom homes for $250,000. This is a huge step down from $800,000 and lowers the deposit you need and the repayments you will have to make.
Maybe $250,000 is too low for you, maybe it is too high. There are properties even cheaper than this, and obviously properties even more expensive. By lowering your standards and looking outside of your comfort zone you may be able to find an affordable property. It may not have all the “bling” and “pizzaz” of that property in the city, but it is still an investment…and isn’t that better than no investment at all?
2. Really and Truly Assess Your Cash Flow And FIND A Way To Start Saving
Ok, it’s time to sit down and really look at your cash flow. If you are serious about investing in property then you need to be serious about saving a deposit. It won’t happen by default (especially if you already feel it is unachievable).
Start by documenting your spending for an entire month (I know it’s not easy). Then sit down and look at where you are spending money. How much are you earning and how much are you spending. Most importantly, where can you cut costs.
NOW this is really important, find where you cut costs and then pay that into your savings account AS SOON AS YOU GET PAID. Don’t wait until the end of the week or the month, put it in first. Because, if you cut out your latte’s but don’t save that money up front it will disappear on something else. Some bill will come out of the blue or someone’s birthday will come up that you just have to spend money on.
3. Start Making A Bit Of Extra Cash On The Side (And Only Use It For Investing)
(in a army major’s voice) “Are you serious about investing in property? I said are you serious about investing in property?”
Because if you are serious about investing in property you need to start looking for ways to make a bit of extra cash on the side (that you can use for investing). What I find with most people is that they don’t feel they can save even a dime of their earnings from work, or they can’t save quick enough.
The answer then does not lie in cutting more costs and living on the street like a hobo. The answer comes in finding ways to make a little bit of extra cash on the side. Don’t think you can do it…listen to this.
Dave (not his real name) worked extremely hard at the oil factory. He had his trade and made fairly good money, enough that he could take care of his family. A few years ago Dave discovered that his young son had Autism. Anyone who has a child with autism knows that the bills that you rack up with specialists and development programs are extremely expensive. Dave set to work to earn some extra money to pay for his sons medical treatment. He created a leaflet and did a letterbox drop in the local neighbour. Dave started mowing people’s lawns for extra money, and all of this money went to his son’s bills. I know this because he mowed my mother-in-law’s lawns.
Dave didn’t used the fact that he couldn’t earn enough money to pay his expenses and then some as an excuse. Instead he got to work (on a pretty simple idea) and made the extra money he needed.
You can do the same thing. Do you have a skill that someone might pay for outside of work? Maybe you can do book keeping for a small business, or start importing items and selling them on eBay. Maybe you can start a website to sell your artwork or mow lawns like Dave did. Whoever you are you can do something to earn some extra cash.
Now just make sure this money goes ONLY to your investment property fund, and not to anything else.
4. Start Small (maybe even not in property)
If you want to become a property investor then you need to start investing in something. Making money from investing is a skill, and one that is learned through experience. Even if you don’t have enough money to buy a property now you can start investing in something. Start small.
You can get started in shares for under $1,000. You could start investing in gold or silver for even less. You could invest in a niche website and buy a small one that generates some passive income. Or you could invest in your own business (eg. Buying some good to sell on eBay…with a markup).
If you start investing long before you buy your first property you will achieve to outcomes.
a) You have the potential to grow your savings if your investment are successful
b) You will gain much needed investment skills that will come in handy when you finally buy your first property
5. Forget The Latte, Look For Big Cost Savings
The daily latte is one of the hardest places to save money. It many cases it is so insignificant that you don’t actually get any extra savings by cutting out the latte (that $3 might disappear somewhere else). However, with large cost savings you can make a big dent in your savings budget.
For example, if you can lower your rent from $400/week to $300/week then you are saving yourself $100/week or over $400/month. This saving can be easily calculated and the extra $100/week can go directly into your savings account (you would have been paying it in rent anyway so you shouldn’t miss it).
Or you could downgrade your car or go from 2 cars to 1 car. Not only will you save money on running costs but you will likely be able to bank a few thousands dollars immediately from the sale of your old car. If you can’t part with your luxury car then I would be asking myself “Am I really serious about investing in property?”
6. Consider Going In With A Partner
If you really can’t afford to buy a property on your own then you could consider going in with a partner. It could be a family member or a friend. Your joint efforts and joint buying power could be the little bit extra you need to get started.
Sure you will only get 50% of the profits, but 50% of something is better than 100% of absolutely nothing.
Just be careful to have a well thought out exit plan if things go pear shaped. Be clear in the beginning what you want to get out of the deal and what you will do if the s#@t hits the proverbial fan.
7. Or Seller Financing
Now we are starting to get tricky. Seller financing is when you purchase the property but you don’t pay with cash (borrowed from a bank). Instead the seller extends a loan to you on the property, you then pay the seller back with interest just like you would pay a bank.
This is extremely common in the US, but not so common in Australia. That doesn’t mean it can’t be done. There are many businesses that exist to help people like you get into property by providing you with seller financing.
You will often pay a slightly higher price and will likely pay a higher interest rate as well. However, I have heard that often banks are more likely to consider someone for a loan if they can prove they have been making regular repayments to a seller. This allows you to then pay the seller the full amount and move your loan to the bank (lowering your interest rate), and as for the higher price – generally speaking if you hold the property long enough it will likely soon be worth the price you paid for it or even more.
8. Go For The Property That No One Else Wants…but don’t make a standard offer
If you are searching for property in an area it won’t take you long before you find that property that no one else wants. The dud that has too many problems so people steer clear of it and it stays on the market for 10 times longer than usual.
Ever heard the quote “One man’s trash is another man’s treasure”? Why not inspect the property, find out its flaws and find out why no one wants to buy it, then find a solution to that problem. If you know the problem and the cost of the solution (and you can estimate the value once the problem is fixed) then you may have a worthy investment on your hands.
Don’t make a standard offer, it is still on the market for a reason and is potentially priced too high. You can make a myriad of changes to the offer. You could lowball it, offering the seller what you know it is worth (not what they are dreaming of getting), you could change the terms and create a 90 day settlement period (or even longer), you could get early access to the property, or you could create a seller financing deal (may you can even get them to waive the interest on the property).
Get creative and think up a way where you could secure the property on the income and with the deposit you have. Make an offer, worst case is they will turn you down and you can go looking for another opportunity. Richard Branson secured Necker Island (his own island) for less than one tenth of the selling price by making an offer…what’s to say you couldn’t strike gold either?
9. Start Buying Assets (instead of consumer goods)
This tip I stole from the master himself Robery Kiyosaki (author of Rich Dad Poor Dad). He used this technique to make himself rich (and financially free). If he wanted something (say I new car) he would first work out the monthly costs (eg. $500/month). He wouldn’t simply go out and buy the car, instead he would buy an investment that generated him cash flow.
When the investment was generating him $500/month he would then go out and buy his car. The investment would pay for the car and he was now rich as he owned a new property that was paying itself off and paying for his car. When the car was finished being paid off he then had an extra $500/month that he could use for his financial freedom.
We may not be able to simply go out and buy an investment that makes us financially free, however, we can start to change our buying habits and look to spend some of our money on assets instead of consumer goods.
An asset is defined as something that puts money into your pocket (passive income). You could look to purchase small amounts of gold or silver as an investment. Just make sure you pay market rates for it. Maybe you could buy a niche website that generates passive income and let it sit…or build it up even more. Maybe you can invest in products that you can sell at a later date, or products that you can rent out for some extra income.
Start thinking about how you spend your money and look for ways to buy income generating assets.
10. Read Every Book You Can On Creative Investing
If you are really in a position where you can’t afford to buy an investment property then my best tip would be to read every single book you can on creative investing.
The more skilled you are as an investor, the less money you need to make a lot of money
The more you know, the less you need. If you know more you can get better returns on less money, building your portfolio and achieving financial freedom quicker. If you haven’t read any property books start with these, and if you have read the basic ones then start reading books on creative property investing. There are many creative ways you can make money with property…learn about them
BONUS TIP: Get On The Forums (but don’t take the feedback too seriously)
Getting a mentor is the best thing to do but probably the next best thing is to:
a) Get a long distance mentor – Steve McKnight is a big mentor of mine even though we have never spoke. I have read all his books and keep up to date on his investment strategies…always trying to learn more
b) Get on the forums – This forum is a great place to talk and interact with other investors and potential investors. Read what questions other people are asking and ask your own questions, however, don’t take the feedback too seriously. Some of the people on forums are seasoned investors with money, and they don’t think highly of newbies coming in trying to make money from nothing. That doesn’t mean it can’t be done…they have just seen too many people wanting to make a quick buck but not really dedicated to the process. Treat the forum with respect, and use it as a sounding board, but don’t let it form the basis of your ultimate decision.
So do you still feel like you can’t afford to buy an investment property? Or are you pumped and excited to get started? I hope you are excited to get started and I wish you all the best. Stick around and read some more posts here if you want to keep learning more