From little things, big things grow: The power of starting small

Speaking of noise, there are so many competing sources of information out there. How are you supposed to decipher the fact from fiction, and even more so, who has the time!?

Real estate is often seen as one of the most difficult asset classes to invest in. It can be complicated, expensive, and people often struggle with the concept of having so much debt.

For many Australians, buying their first home will be the most expensive purchase they make. For some, it’s hard to fathom buying a second, let alone a third or fourth. Well, I’m here to tell you that you can.

Success in property investment is about changing your mindset. It is a wealth-creation tool that is surprisingly accessible to most Australians – not just the enclave of the über riche.

The good news is it is a lot easier than you think.

From small to big

The reason why it might seem easier for the wealthy is because they have leverage from the properties they already own. As they continue investing, their wealth builds. There is nothing special about what they do.

The wealthier you become, the more opportunities you can take advantage of, and the key is to start small.

Take note of your current situation and start looking for the best deals that work with your budget. You don’t need to be looking at $600,000 off-the-plan units or an $1,800,000 waterfront property. Just because the market value is higher, it doesn’t make it a better investment.

With a lower purchase price, you won’t get rich overnight, but it will give you some powerful leverage for the next deal. By combining positive cash flow, with the magic of compound interest, and you can still yield a powerful return on investment (ROI). Chuck in an additional wealth magnifier like a granny flat, and you’re onto a winner.

Take for example a three-bedroom, one-bathroom home on a 740 square metre block we recently purchased for just $216,000.

The property was purchased for nearly $20,000 under market value in a suburb that was rapidly gentrifying. There were strong indicators that this suburb had a high demand for housing from both owner-occupiers and tenants. The vacancy rate of 1.6 per cent suggested that there was a low supply of rentals on the market.

With a yield of 7.7 per cent and growth rate of 5.6 per cent, the property presented the perfect opportunity.

It was code assessable for an auxiliary unit, which meant the buyer could build a granny flat on the property immediately and maximise the returns for the first year.

Buying under market value maximised, the ability for the buyer to use additional cash reserves to fund the new granny flat development at a cost of $120,000, on a 90 per cent construction loan.

Strategising

By layering multiple strategies together, such as under market value, cosmetic renovation, granny flat, positive cash flow and capital growth, we are able to present a forecast 10-year ROI of 933 per cent.

This takes our initial return in year one from $25,795 to $355,234 in year 10! This is how we can use compound growth and leverage to create a massive return from a modest deposit, provided we take into account the right metrics.

This isn’t to suggest that a lower buy is always better. There are opportunities at every price range, as long as you know what to look for.

What this means is that even if you are on a budget, have a low income or aren’t ready to make a massive commitment, you can still move forward with property investment.

The key is to focus on a single strategy. In this case, investing in high growth, positive cash flow properties with value-add strategies – what we call high-performance properties.

Ideally, look out for properties under market value in high-growth suburbs, which offer positive cash flow and the ability to add further value through renovation or additional dwellings. This can effectively minimise your risk and provide you with secure leverage to experience astounding compounding growth – both manufactured and economic.

In favourable conditions, the property will continue to appreciate in value. This will provide you with leverage to then seek out the next opportunity, utilising the same strategy. It might seem intimidating at first but don’t get stuck in the analysis phase.

With each investment, your confidence will grow. You will soon start to see that it is not just the wealthy that are investing in property. Rather, everyday Australians who are looking to secure their future and achieve their dreams of financial freedom.