Wednesday, May 13, 2009

So you have $100 spare a week....

I'm going to assume you've read the rest of the posts here and have found you have $100 spare a week. Instead of going out and buying that really expensive seat covers for your beast, why not think about doing something constructive with this money instead?  

You've probably already read about putting this cash into the tempting online savers or term deposits. But let's face it, you are going to earn, AT BEST, $5 per year on every $100. This is a very time consuming way to make cash flow, albeit safe and secure. Yes it's stable and you will have compounding interest working for you, but why not instead think about other cash flow streams? You could do a kazillion things with this money, but I suggest that you buy a house. 

Now, before we all get our panties in a knot about whether we should buy shares or invest in property or maybe just to go and buy a toeaster at K Mart, I'll let you in on a little secret. Buying property brings in at least three types, if not more, of income.

Here they are:

1. Rent: That's right, someone less fortunate than you, or in a particular predicament that buying a house is not for them, will need a place to live temporarily. Bingo, cash in on rent made from an investment property. 

2. Property price increasing: You may buy a house for lets say $150,000. Admittedly, it's not going to be flash, but it's a start. Historically speaking, this property will, OVER THE LONG RUN, double in price every ten years. The secret here is that you need to hang onto this rental house for at least 7 and if possible, even longer. In this time, you will make an additional $150,000, or $15,000/year and if I'm being very conservative, I'd say $10,000 a year. Does this sound good for $100 weekly investment? Put in 100, get back 200....sweeeet...

3. Tax breaks - If it costs you more to repay the mortgage, rates and insurance than you get rent, hey presto, you are losing money. But it's all good...come tax time, your income tax is reduced and you get a sort of "pseudo" cash flow. This is often refered to as negative gearing or cf- (cash flow minus).

4. Depreciation - To add further to the incentives, especially if you can afford a newer house in Australia, you treat the house as a tool for making you money, and hence, you get to claim "wear and tear" through setting up a depreciation schedule for things like carpet, the kitchen cabinets etc. These items, as they get older are worth less and you can claim this difference against your tax as well. This is sometimes called the "hidden income stream" by property gurus. I call it JACKPOT!!! :)

So by now you're thinking, well yes it sounds good, but it's sooooo risky. To all of you I say...build a bridge and get over it. Jump in. Grow some kahuunas and have a go. I always tell people that the worst that can happen is you make minimal profit, as long as you HOLD THE PROPERTY FOR AT LEAST 7 YEARS! This is almost a guarantee in the Australian market. Don't forget, this will make you serious money, but you have to wait for quite some time to realise the cash.

Finally, think how long you would have to wait to save up $10,000 normally from your everyday wage. With property, you can effectively make your first 10k in about 6-8 months.

For more info on this sort of investing visit my other blog here. At propertyinvestinginaustralia I document further thoughts and ramblings, letting you in on what I am doing to acquire more and more property and how it has put me in a financially stable position in 5 years.   

Next episode: Buying a starter investment property. How you can do it with as little as $100/week (right now!)

     

1 comment:

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