Day 15.
So we're going to talk about the reality
of building equity in today's property investing market.
So what we can do is we can dwell on the past
and we can say that it's too hard and you'll be right in the past.
You go back ten, 20, 30, 40 years for property investors
it was a lot easier to build up a big portfolio than it is today,
where we're talking about ratios of, of average income
to property values being around a third and now values are closer to about a 10th.
So where if your income was combined 100 K
the property values were about 300 K and now they're around 1 million.
So it is a lot more expensive to buy property than it used to be.
There's LVR restrictions that are getting in the way, whereas those restrictions
weren't really in place back in the day and there's a lot more competition.
The demand is far outweighing the supply and it seems to be
getting harder every day.
Or instead of taking that approach of blaming and feeling sorry for ourselves,
we can just accept the situation as it is and we can figure out, OK,
if we do want to earn millions of dollars and profit from property investing,
then what can we do and how can we do it?
There's three kind of broad categories.
There's adding value, spotting value and bringing value,
and you've got to stop thinking about property investing as a
as a solo player game, especially when prices are,
you know, in that ratio of being one to ten of income and value
and you've got to start getting a little bit more detailed than
then you would have had to have 20 years ago
if you bought anything 20 30 years ago and you had it valued now
you're going to have made a lot of equity,
but that today might not be the same case.
So if we look at them one by one adding value, how can you add value
so that you are going to be building up equity
and in a fashion that is quick enough that you're going to stay interested.
So we touched on this in the first video.
The three CS is really important.
Adding value is going to build up your equity you can do that
through renovations, you can split cross leases,
you can focus on increasing the yield, and all of these things are going
to make the, you know, the values go up by ten
to 40% within short periods of time.
The if you buy something that is a bit rundown
and you give it a new lease on life,
as long as you don't spend too much money, then you're going to be building equity.
Now adding value is the simplest form
of arbitrage to building equity in the property investing game.
The next, the next level is spotting value.
Now spotting value is your typical property investor,
person on the street, your mum and dad at the barbecue
they're not necessarily going to be able to understand or spot
development or subdivision potential properties.
And if you just spend ten, 20 hours researching
talking about developments and subdivisions,
you're going to have a lot more knowledge than most people and you can start
feeling more confident about going and tendering
or putting down offers on properties that have potential
for development and subdivision the return on,
on your cash is going to be 20 to 35%
in this
in these areas on average and the property developers in this space
are running their projects thinking about margins on their cash like that.
So even if you're only half as good there still should be enough fat
for you as long as you're not overpaying that you're going to get returns.
And without doing any development or subdivision it's very, very very hard
to build equity quickly in the property game.
Now another area where you can spot value is when there's mortgagee
sales or quick sales required.
So if you see that listing that says seller must sell a four week
period like something's going to auction and it's going to sell no matter what.
There are going to be auctions and sales of property that sell below their average
know what the market value should be because that seller is forced by outside
circumstances to this specific property to take action quickly.
And if you know how to find those deals, then you can spot the value.
It can build equity much faster.
And yields is
another area where if you can understand yields based on
like some of this other stuff put together, then you might see something
that is on the street side only viewed as maybe
a three bedroom property and there's not that much potential.
But if you can see a way to get the yield way up,
then you are actually spotting value that other people haven't recognized.
You are able to potentially pay a bit more because you're recognizing
that that real return is going to be higher.
Now, the third level of value creation to be building
equity is to bring value to property deals.
And specifically I'm thinking about joint ventures
or where there might be a group of you involved
either completing a transaction or middle manning a transaction.
So some
examples of bringing value to a deal is finance
and capital expertize or even having the capital.
So if you have $1,000,000
sitting in your bank account ready to deploy into property investments,
you should be able to bring
that specific value to other investors that have capital deployed
and you have good negotiation power and good ability
to be first in line to be building equity.
Somebody might be really good at spotting these developments
and subdivisions, but they have no capital.
If you have the capital, you can say, Look,
I want 25% return on my cash
and we'll split 50/50 anything above that 25%
if somebody is really good to find development properties, getting them
under contract, getting deals done, they can do really well out of it.
And so can you.
Now bringing value, maybe you're handy with DIY or you've got construction
contacts or expertize,
you can bring a lot of value to a group of investors
by putting your hand up and say, I'm going to manage and complete
this renovation on our behalf.
Speed is valuable.
So if you're able to do transactions quickly
or you are able to get things under contract quickly, especially before
anyone else that is bringing value to the equation.
And if you like and that's me talking about specific deals as well.
So if you have a property under contract that is a good deal,
then you are going to create and build equity for yourself.
If you can settle you just need to find this missing piece.
If you have good deals and good properties under contract, then you should be able
to find the money to get those properties settled and create
an arrangement or create an agreement
where you're getting some of the action, even if you're not putting in
much of the money.
So you do need to be creative in today's market to build up equity.
You can't just say, I'm going to buy a property
every five years and hope that everything works out.
If you really want to create like true wealth through
property investing, you're probably going to buy one or two properties.
You're going to get close to being fully leveraged
well safely anyway, and then you're going to have to start
thinking about these other things so there's a lot more to it.
Any questions about building equity or adding value?
Let us know below.