All investors love the idea of their property growing in value. It’s one of the main reasons that people invest in property. Time and again, we are asked the same question. How much will the property grow in value?
However, investing is a numbers game. It’s knowing the true cost of your investment. A number can be calculated. Growth cannot.
Therefore, the first question should be. What is my cash flow on this investment?
More specifically, an investor must ask. How can I hold onto the largest number of assets for the least amount of weekly cost to me?
You want to ensure your asset base is as large as you can afford and you need to be prepared to hold onto your assets for the longest period of time you can in the market. That is the value of time. Remember, hold, hold hold.
Additionally, property is a vehicle that allows you to start with a deposit and borrow a larger amount of money to fund the investment, therefore significantly increasing the value of your investment.
Deposit + Loan = Residential Property Investment
Let’s review what cash or equity is required to purchase an investment property.
|Costs to purchase
Here is an example of how an equity purchase works for the home owner. If your home is valued at $600,000 and you have a mortgage of $300,000 the difference between what you owe and the value of your property is called equity. You can use part of this equity to purchase a property. Naturally, this is always subject to the lender’s approval.First time investors will be required to have savings to purchase a property. In the example above, the investor requires $67,500. Owning your own home means you could use the equity in that property instead of savings.
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