makinginformedchoicesaboutwheremydollars
areused.I thinkbudgetshelphouseholdsprioritise
money,andtheflow-onis yougainanalmostauto-
maticabilitytoassessyourspendinghabitseach
timeyoureachforyourwallet.
Whileinitiallyyoumightfindyourselfsaying,
“Accordingto myExcelspreadsheetI canonlyafford
takeawaydinnertwicethismonth.Whata drag!”,what
eventuallyhappensis youautomaticallyprioritise
theimportanceof whatyou’redoing.You’llchoose
tohavea takeawaydinneronlyoncethismonth
becauseyourpersonalbarometeralreadydecided
takingthefamilytoseea liveperformanceofThe
43-StoreyTreehousewasa betteruseofyourcash.
Thenicethingis,whenyougettogripswith
budgeting,youstopdenyingyouandyoursthe
importantthingsinlifeandbeginenjoyinghow
youuseyourmoney,allthewhilewatchingyour
personalwealthincreasethroughinvesting.
It’sa prettynicewaytolive.
Journeyplanner
I alwaysadviseinvestorsoftheimportanceof
developingtherightmindsetandsettinggoalsto
determinewherethefinishinglineis.Buttypically,
whatis theprocessfordefininga pathonceyou
understandwhereyouwanttoendup?
Likeanyjourney,knowingyourdestinationis
onlypartoftheprocess,becausethenextstepis
formulatinga plantogetthere.
Let’ssay– forargument’ssake– toachieveyour
dreamsyouhaveto create$100,000a yearin passive
income.Whatdoyouneedtothinkaboutinorder
toforgeyourpath?Startbytakingstockofwhere
youarenow:
- WhatamI earningnow?
- Whatis mytotalsavingsposition?
- Whataremypresentcommitments(eg,rentand/
ormortgagerepayments)? - WhatexpensesdoI needtolive,workandplay?
- What’smysuperannuationposition?
- How many years do I have until retirement?
By looking at your take-off point and compounding
potential returns over the years you have until retire-
ment, you have a better chance of determining where
the likely shortfall is and how best to fill that gap.
If you’ve got your own home, how long is it going
to take you to pay off that on your current income
at your existing mortgage level? By calculating how
long this will take, and allowing for your total savings
and equity position, you can start to understand what
sort of wealth you will need to build over the next
few years to help you achieve your goal.
If you buy a $500,000 property now, based on, say,
a 6% annual capital growth rate compounded over
13 years, it would be worth $1,006,098 in the future.
At a net (after costs) yield of 2.5%, that reflects an
annual income of $25,152 to you.
Consider how close this will get you to acquir-
ing that $100,000 a year passive income. Based on
these numbers, that investment is going to get you
a quarter of the way there. So, theoretically, you
need four of those assets in your portfolio and to
be mortgage-free too, of course.
You need to factor in all the variables. Figure out
where you are now financially, how much you have
in super, and how much it is going to take to pay off
your home or pay rent (if that’s what you choose to
do). And then, from a property perspective, how
many investments are you going to need to buy,
what will their value be and what sort of rental
return can you expect?
If you have a joint mortgage, you’re going to have
to discuss with the other mortgagor/s how you’ll
eventually pay down the mortgage or mortgages.
Would you sell down the assets at a defined time
and pay down the debt?
Finally, there are important decisions to make
around ownership structures, pay-down methods,
sell-down methods, the ramifications for capital
gains tax and all the other aspects that come with
property investing.
As you can see, setting out an investing strategy
is both complex and highly individualised, but the
three essential elements remain the same:- Where do I start?
- Where do I want to finish?
- How will I get there?
It needs to be a really calculated, step-by-step
process and requires you to be frank and open,
laying all your cards on the table. M
Win a copy of the book
This is an edited extract
from A Surfer’s Guide to
Property Investing by Paul
Glossop (Major Street
Publishing, RRP $29.95),
available nationally. Paul
is a professional prop-
erty investor, a qualified
property investment
adviser and buyers agent.
For your chance to win a
copy, tell us in 25 words
or less how you entered the property market.
Enter online at moneymag.com.au/win or send
your entry to Money magazine, Level 7, 55 Clar-
ence Street, Sydney, NSW 2000. Entries open
July 29, 2019 and close on September 4, 2019.