Real estate investing is NOT a magic bullet!
Last week a gentleman rang to ask me whether he should invest in my Super Secrets To Real Estate Wealth course, given his circumstances and I said: “NO!”
Here’s why…
Ron had a house which was worth around $720,000 and he had a mortgage on it for about $505,000. in other words, he had about $215,000 worth of equity, if everything went well.
If the banks followed their general lending criteria, he would qualify for a loan of around $576,000 (80% without mortgage insurance) on a property worth $720,000 (provided he could service the loan). This means that he would have $71,000 to put towards an investment property.
While this would ordinarily be sufficient to use as a deposit on about 3 - 4 investment properties, it would have been a very risky strategy for Ron.
You see, Ron was in his mid fifties and his wife was unable to earn an income because she faced increasing health challenges.
Ron was the only breadwinner and he was running a “one-man” business which was generating a reasonable income. He had no superannuation and no other investments.
Even though he believed the house to be worth $720,000, it wasn’t quite finished, because he built it as an owner builder and he still needed to carry out extensive landscaping work.
As our conversation developed, Ron explained that he was struggling to keep up the mortgage payments on his house.
Ron thought that if he were to buy an investment property or two using my strategies, it may help him out of his financial challenges.
I told Ron that: “Real estate investing is NOT a magic bullet and it takes time to build wealth.”
If he was already in financial difficulty now, buying an investment property or two would probably only add to his stress levels.
Ron’s house was located on the outskirts of a major city and with increasing fuel prices, Ron was finding it more and more expensive to travel to his clients who were located closer to the centre of town.
Given that this was a large house on a big block of land and that only Ron and his wife lived there, I suggested that a smarter strategy would be to sell the house (that would be a very emotional decision, since he built it) and reduce his level of personal debt.
He could easily buy a smaller house, closer to where most of his work was, manage his mortgage payments more easily and then go out and buy some investment properties. The best time for him to get hold of my course would be after he has restructured his affairs.
The idea is to have as little personal debt on your own home (because it is not tax effective) and most of your debt on your investment properties.
My suggestions in Ron’s case take into consideration his age, his wife’s ability to generate an income, his ability to earn an income and his asset position. A younger person with a stronger capacity to increase their income may be able to successfully take on more risk.
Please understand that this case study example should not be considered to be financial or investing advice. It is presented for educational purposes only. You are advised to seek appropriate advice from a licensed advisor before making investment decisions.
Technorati Tags: investment course, property investing, real estate investing, renovating, retirement planning, superannuation
Warm Regards,
Hans Jakobi - Australia's Wealth Coach