8 Top Tips When Buying an Investment Property

In most countries, purchasing an investment property continues to be one of the most popular ways to invest. The goal of this investment should be to provide you financial freedom and enhance wealth. The problem is many believe that once they get into the venture, it will be a guaranteed, easy success.It is vital you learn how to effectively manage your investment as this will determine whether or not the investment can help you achieve your financial goals. Below are a few tips when buying an investment property:1. Choosing the ideal property at the right pricePurchasing an investment property at the right price is highly critical. It is all about the capital growth when it comes to investing in a property so make sure to choose a property that has a high potential of increasing in value.Always do research. Find out as much as you can about what is selling in a certain area. The more you learn, the more you become skilled in determining the property that is worth investing on. In other words, you will know a bargain when you see it.If you want to acquire valuable data on various locations and properties, get information from lenders and insurers as they have data that can help you avoid selecting the wrong investment property.2. Do Your ComputationsYou should consider property investment as a means of long term type of investment. As this is the case, you need to ensure that you have the budget to maintain your mortgage repayments over the long-term. It is not right to sell your investment property when you are not good and ready since if you are to encounter any financial problems then you might be forced to dispose of the property at the wrong time.It is less expensive to keep an investment property and service the loan once you already own the property. This is because you can get rental payments as well as tax deductions on several of the expenses connected with property ownership. Things will become easier along the way especially that as rent tend to increase over time so will your income.Learn the taxes involved in property investment and include this in your budget. Seek advice from your accountant and learn about stamp duty, capital gains tax and land tax. While interest rates can change over time, as the owner, you can always increase the rental fee to cope with the expenses.3. Get a Reliable Property ManagerUsually, a property manager is a licensed real estate agent whose job is to make sure that things are in order for you and your renter. Your agent can provide you advice, assist you in managing your tenants and help you get the best value for your property.Your agent should be able to teach you about property law as well as the rights and responsibilities of both you and your tenants. The agent can also handle maintenance problems. Except for other emergency repairs, the maintenance costs should get your approval first in advance. Your agent can also assist in finding the right tenants, do background checks as well as make sure tenants pay rent on time.4. Understand the market and the dynamics where you are buying.Search for other properties available in your current area and talk with as many real estate agents and locals as you can. Only get advice from professionals you can trust and make sure to do the leg work. You can use the information in this site to view demographics, average rents, property values, and suburb reports.It will be to your advantage to know about the changes that are planned or are happening in your suburb. For example, knowing about the planned by-pass may quickly enhance the value of your property as this means traffic in the area may reduce.5. Pick the right type of mortgage to suit you.There are a lot of financing options for an investment property. Seek advice in this area to find the option that will be in favour to your financial status.While the interest on an investment property loan is usually deductible, some borrowing costs are not easily deductible. Appropriately structuring your loan is vital and it is best that you seek help from a trustworthy financial advisor about this.When choosing between a fixed rate loan and a variable rate loan, go with the loan that is in favour with your circumstance. Carefully consider both options before you decide. For example, as a variable rate loan can become cheaper overtime, choosing a fixed rate loan at the appropriate time can really be beneficial.Rather than principal and interest, a majority of the investment loans should be created as ‘interest only’ as it can enhance the effectiveness of the tax of your investment especially for a home loan. An ‘interest only’ loan is better compared to principal and interest loan when it comes to investment property since it causes your negative gearing benefit to decrease as you pay down your loan.6. Examine the age and condition of the property and facilities.The condition of your property and facilities can highly affect the profit of your investment. It is vital, that before making a purchase, you hire a professional property inspector to perform comprehensive inspection of the property in order to detect potential issues earlier.7. Make the property attractive to tenantsChoose neutral tones and make sure that your property’s kitchen and bathroom is in good condition. An attractive property can attract better quality tenants. When it comes to purchasing a property, do not only consider what you think is attractive to you. What is attractive to you may not be attractive to some. Remember, that the investment property will be the home of your tenant and not your own.8. Take a long-term view and manage your risksThink of property investment as a long term investment and understand that property prices do not rise right away. The longer you can commit to a property, the better. When you build up equity then you can decide to purchase your second investment property. Avoid being greedy and balance your goal of financial stability and in enjoying your current life.

Start an Investment Account – Level IV to Financial Freedom

After you’ve eliminated your bad debt, you’ve started a retirement account, and you’ve saved an emergency fund. It’s now time to start the intermediate levels to Financial Freedom and on to Level IV – Investing!There are few things you need to think about determining how you are going to achieve this level. First, do you have the time and inclination to learn about investing? If yes, then you can consider the complex option to this level. If not, then you need to proceed straight to the simple option.For you to be able to take on the complex level, you’re going to need to read a few books, understand how to value an investment, and start to understand broad markets like the stock market and the commodities markets. You need to start understanding how inflation (or disinflation), commodity prices, interest rates and their direction, the growth in the economy and public policy affect the markets. So which option is best for you?Investing OptionsSimple OptionA first possibility is a simple option and it is to use the robo-advisor. A robo-advisor is a platform like Betterment, Wealthfront or Personal Capital that manages a portfolio for you of index funds based on an investment plan and a managed asset allocation. Using a platform like Betterment, in particular, allows you to set up goals with time horizons and an investment profile for each goal. You can set the duration of how long to reach the goal based on your risk profile and it will help create an investment plan for you. This makes the whole process automated, simple and manageable. The investment plan will outline your asset allocation for your portfolio and how much per month you need to contribute. This is a very good approach towards solid systematic goal-based investing.For example, you want to have a goal of buying a house in 3 years. You think you need $60,000 for a down payment and you have a moderate risk profile. How much do you need to contribute every month and what do you need to invest in to reach your goal? Betterment’s platform handles the entire process. Based on these assumptions and configurations, the platform recommends you save $1,500 per month towards this goal. As time goes on and you start generating returns, the estimate contribution to stay on the target may change, but you get the idea how this will help you manage to your goal.Complex OptionA more complex approach requires you to set up a brokerage account and learn much more about investing.If you’re going to pursue the complex option to investing, then you’re going to have to learn a some of the basics. One of the basics is about how to value an investment. Let’s start with stocks. Some of the basic fundamental indicators for how to value a stock includes PE ratio (Price / Earnings), PEG ratio (PE to Growth) Ratio, dividend yield and ROE (Return on Equity).Valuation Criteria for StocksLet’s take each of those ones by one. The PE ratio is the price to earnings ratio. This is generally how much you’re willing to pay per dollar of earnings. The average PE for a large cap company in the S&P 500 is 15. This means that most investors are willing to pay $15 in stock price for a dollar of earnings. The standard valuation model will change depending on the company sector and industry. For example. the high-growth tech sector may have an average PE of 25 while the low-growth utility sector may average a PE of 8. But, the general criteria to learn here is what is a good PE ratio that represents value and what PE ratio represents over-valuation.The next indicator is the PEG ratio, that is the price to earnings to growth ratio. This indicator measures price earnings to the company’s growth. In other words, this indicator is measuring how much an investor is willing to pay for growth. If a stock has a PE 15 and an average 15% per year of growth then the PEG ratio is 1.0. If the company has a PE ratio 30 and company has 15% annual growth, then the PEG ratio is 2.0. Generally speaking, a PEG ratio of 1.0 indicates a good investment opportunity, and a PEG ratio of 2.0 or higher indicates a time to sell a company’s stock. An investor wants to be mindful of how much they are willing to spend on a company relative to its growth. If you’re investing for growth, this is a key indicator to follow.The next indicator an investor wants to consider is the dividend yield of the company. This is the main indicator for the value sector of your portfolio; if you’re investing for value, this is an important indicator to follow. An investor would like to see a company have a dividend yield that is higher than the 10-year Treasury interest rate. So, for example, right now the 10-year Treasury is 2.3%. An investor would like to find companies that have a dividend yield higher than 2.3%. This will obviously adjust over time as inflation and interest rates change. This is indicator does not work well for evaluating growth-based in assets or investments held. But, it is something that should be considered within your overall investment strategy.When evaluating stock investment options, the final base indicator that should be considered when evaluating a stock investment is the ROE or a return on equity. The return on equity indicator demonstrates a companies’ ability to generate a return per invested dollar. Generally, companies with good brands that don’t need large capital expenditures can generate a good ROE. Companies with lower ROEs have less defensible business models. ROE is important because it shows a business’ efficiency in generating a return for shareholders.DiversificationThe next important factor to learn to become a good investor is diversification. I think it was Jim Cramer who said diversification is the only free lunch. Diversification allows an investor to manage and mitigate against various market changes. As an investor, you want different asset classes in your portfolio, which will all be affected differently against interest rate changes, inflation, economic growth and commodity price changes. One of the basic diversification calculation is a percentage of stocks and bonds in your portfolio. Generally, I would break it into owning most of the following 9 asset classes – US Stocks, Developed Market Stocks, Developing Market Stocks, Real Estate (REITs), Natural Resources (Timber & Oil), Gold, Corporate Bonds, US Govt Bonds and International Govt Bonds. Many go into other diversification like sector diversification or company size (large cap or small cap), but I think it’s more important to think about these larger asset classes. Based on your goal(s), time horizon and risk profile, you should think about diversifying your investment portfolio over these general asset classes. My favorite book on the subject is David Swensen’s, “Pioneering Portfolio Management”.ConclusionThere’s no way to cover all the details that are required in handling personal investment in one article, but I hope I’ve given you some ways to approach winning at Level IV. The goal is to set up a system of investment. All investment dollars should be tied to a goal and all goals should have a time horizon, risk profile which leads to an asset allocation. You can use a platform like Betterment to help manage to your goals, you can hire a professional, or if you have the time and inclination, you can start learning about investing.Most people start investing by learning how to invest in the public stock market. I agree with that, so I’ve outlined a few points to think about on how to value whether you’re getting a good deal on an investment and how you should broadly diversify your investments. Once you’ve built a system and reach one financial goal, you’ve won at Level IV – Winning at Financial Freedom.Happy hunting!

Investment Guide to Investing For Beginners

You need the best investment guide you can find in this messed up economy and tough investment environment. You’ll also need a good guide to investing for beginners to navigate the rough waters ahead. Investing has never been more difficult or confusing. It’s time to learn how to invest, and here’s how to go about it.First, you’ll need to get a handle on the investment universe including any investments you might already own. This is not that difficult if you have a good investment guide, since there are only 4 basic investment alternatives out there. Second, you’ll need to learn how to invest and put together a sound investment strategy that will work for you in both good times and bad. That’s what a good guide to investing for beginners can do for you.In other words, learning how to invest successfully over the long term is a two step process. Skip step number one and you won’t understand step two. Without step two you won’t be able to put the investment knowledge you learned in step one into action. Up front I stated that now is a tough time to invest. Now I’ll back that up with my 35 years of investing experience, in terms of the 4 basic investment alternatives available to all investors. Consider this a mini investment guide and a wake up call. Investing for beginners is no picnic today.Your 4 basic investment alternatives in order of safest to riskiest: safe investments, bonds, stocks, and alternative investments. Safe investments like bank accounts and money funds pay interest, and these days they don’t pay much. The score in late summer 2010: 1-yr. CDs at less than 1% and money funds at less than.05%, or one-twentieth of 1%. This is not normal, and is in fact downright scary. The government can hardly push rates lower to stimulate the economy as they’ve done in past years. We are already looking at zero interest rates in the money markets.In order to earn higher interest income of 3% or more, average investors are moving money into bonds in the form of bond funds, which are not really safe investments. Simply put, when interest rates go UP, the value of bonds go DOWN. That’s a basic investment fact you can count on – interest rate risk. If you believe that interest rates will fluctuate as they always have and will go up in the not-too-distant future, bonds are not exactly great investment alternatives at this time. With two down and two to go, we move into the riskier choices that involve assuming the risk of ownership in order to earn higher returns.Any guide to investing for beginners can point out that on average, over the long term, stocks have returned about 10% a year. The problem is that over the past 10 years the average investor would have done better with his or her money in safe investments in the bank. And over the past 3 years, a loss of about 10% a year was common for the stock funds that invest money for millions of average investors. Investor confidence in the economy and the stock market is not high, as billions of dollars are being pulled out of stock funds and moved someplace else (like to bond and money funds) in search of greater safety.In the past when uncertainty was high and confidence in the stock market was low, smart investors turned to other (alternative) investments like real estate to find opportunity. That’s been a problem this time around, because the financial system seems unable to get the traction needed get things moving again. High unemployment won’t go away and millions of mortgages are “under water”, as people decide to just walk away from their financial obligations. Gold and silver have done well compared to other investment alternatives. If history is any guide to investing, that’s not exactly a cheerful note. People buy and hoard gold in times of fear and desperation.Out of our 4 basic choices, none looks like a screaming BUY opportunity. Some of the best minds in the investment world are suggesting that investors need to start viewing the investing game differently and lower their expectations. I suggest that you start with the basics and curl up with a good investment guide on a rainy day. Then, you’ll want to follow up and learn how to invest with a guide to investing written for beginners. Once you start to get up to speed you might even begin to enjoy the challenge. And make no mistake about it… investing today is a challenge.