So for the average Joe who is not the next Mark Zuckerberg or young millionaire, pay attention. The 4 wealth fundamentals you’re about to read are not only practical and realistic, but integral to your success.

Goal

When it comes to building wealth, always start with the end in mind. By knowing your goal, all your other decisions and actions will be better guided towards its attainment. Although it’s the most simple, it is also fundamental.

Ask yourself – How do I want to live after I retire? Comfortable? Lavishly? The answer will help find the solution to the next question which is – How much would I need in my retirement for this lifestyle?

Once you know this information, you need to create a flexible plan that can be adjusted as time goes by.

Income

At the foundation of your wealth building strategy will be your start up capital, which usually derives from the income you create.

There are a lot of factors that you need to take into consideration when it comes to income. One would be whether you know if your present income is going to be stable, increasing or decreasing in the future based on your circumstances and career. The answer will dictate how freely you’re able to spend or how cautious you should be with the money you’re currently making.

Aside from living expenses and leisure, your income should be set aside for a smart and proactive savings plan. This is a factor that is highly recommended especially if you’re young, as the earlier you begin the longer you have to build this up.

Investing

Only after your savings plan is set up and active, should you start investing. Every other factor in building wealth is based on surviving. The reason why investing is so important is because it’s geared towards thriving and having a great future instead of just preparing for a “rainy day”.

In many cases, time is the most important factor in investing, oftentimes more important than the amount you invest due to compound interest. The most important component is that you start as soon as possible, even if it’s a dollar that you can build on over time.

Expenses

Without a doubt, expenses are the one factor that if you get wrong, can cause failure for the rest of the fundamentals. The fact is, if you’re spending more than you’re earning, not only are you losing money, but you cannot save, invest or create a prosperous future for yourself.

If this is the case for you currently, feel good that you came across this article. Have a look at your weekly expenses, what are the musts and what are the purchases that don’t really matter?

This could be as simple as cups of coffee, excessive shopping or anything that you feel you do to an excess. Although cutting these are small at first sight, in hindsight you will find they build up to massive savings and will tip you over the scale to more income than expenses.

There are many more facets and factors to learn of course, but these tips will give you a basis of understanding on what to initially pay attention to. Wealth is a major component in our lives, so making these fundamentals a focus will be one of the most important decisions you make. Contact us today to discuss further. 

Although this seems like an ultimatum between the two, the truth is that you can be involved in both. This article will delve deep into both sides of the coin so that you can better delegate your funds to each one.

Paying off the mortgages

Focusing on paying off a mortgage can have its pros and cons. It’s always optimal to be aware of both. This section will give you insight on the main four factors that you will be both gaining and missing out on when paying attention to this area.

Advantages

Certain return

When most people think of paying the mortgage, it’s usually associated with clearing debt rather than making money. In fact it’s both. Every cent off the mortgage allows you to collect interest that would have been spent on the mortgage. Perhaps the best part about this is that there are limited risks, it is a guaranteed return.

Piece of mind

The main reason why people focus on mortgages rather than investing is because of a tendency to choose safety over risk. Perhaps the best benefit of paying off a mortgage is that you gain certainty that cannot be equaled in the volatile share market. Although you’re not playing to win big, you are securing your future in the sense that you won’t have an overbearing mountain of debt.

Disadvantages

Tunnel vision

Although tunnel vision may work well for athletes or anyone competing in certain industries, it does not apply to this. By focusing all your energy on paying of the mortgage, you can very often miss extremely lucrative investment opportunities that would otherwise have paid you a much higher return. Although you’re securing your financial safety, you might also be missing out on your financial freedom.

Eggs in one basket

Like the above, sometimes putting all your eggs in one basket can work. If safety and security is your priority though, this can often-times backfire when you place all your attention on your mortgage. When your capital is involved in only one asset, if anything goes wrong you have nothing to fall back on.

Splitting Funds Between Mortgages and Investing

Alternatively to the above, it is possible to use your capital for both options. Although you will be diversifying your focus, there are benefits as well as the negatives that you will come across.

Advantages

Potential for large return

The beauty of investing in things like shares is the potential for long term income that is likely to be more lucrative than what you would save in interest by paying off your mortgage. This also allows you to better pay of your home whilst having excess cash to spend.

Asset diversification

We mentioned that putting all your eggs in one basket is not always the best option when it comes to money. This is why investing alongside mortgages is phenomenal for securing a safe future. This means that if one of your assets is performing poorly, it is likely that another will balance it out.

Compound interest

If you have ever heard of the term “making money work for you”, this would be the closest thing to it. The compound interest effect of investing cannot be overstated when you give time for it to grow. This is why if you choose to go down this route, invest as soon as possible even if it’s only a dollar, so that you can begin taking advantage of this principle.

Disadvantages

Experience required

Although not much, a decent level of understanding is required if you desire to be successful in investing. This can be a negative or positive depending on your situation. If you are in the situation where you lack the experience or knowledge, either learn or find an individual who knows what he or she is doing.

Higher risk

The potential for bigger gain also comes with the potential of a large loss. The risk in investing is real and must be minimised when making decisions as to where to put your money. Factors such as unexpected market fluctuations and so on all happen regularly. A long term approach is much more ideal for minimised risk as opposed to a short term approach which rarely works out.

As you can see, both options are viable depending on your personality and circumstance. If you are someone with confidence and experience in investing, the latter will always be ideal. Alternatively if you’re not, you can always minimise the amount you put in initially compared to the mortgage so you can at least get your feet wet.

Interested in learning more about investing? Contact us today!

But unlike most of those tenants, Ms Rossi also owns four investment properties across three states.

She is among a growing breed of real estate investors who chose not to own their own home. Known as “rentvesting”, the strategy sees people using investment property growth to build a deposit, or they rent a property that fits their desired lifestyle rather than what they can afford to buy.

“There is no benefit for me in living in what I own,” said Ms Rossi, 34, a digital consultant, lifestyle blogger and co-founder of online wedding marketplace Capriess.

She said building wealth through property investment was a major goal, and renting while investing freed up cash flow for investments and her businesses. “These properties are purely part of my investment strategy … this allows me to increase my cash flow and live a luxurious city lifestyle at minimal cost.”

Research by ME has found that one in 10 first home buyers are choosing to buy as an investor while renting a place to live.

“Renting is usually cheaper than owning in a given suburb, and as a tenant you’re free to select a neighbourhood that meets your lifestyle preferences,” said ME head of home loans Patrick Nolan.

He said rental properties that rose in value could improve investors’ equity to buy their own home later, but they needed to consider expenses such as insurance, rates and repairs.

“More importantly, your investment property will be subject to capital gains tax. Unlike an owner-occupied home, which is tax free, any profit you make on the sale of a rental place can be taxed.”

Metropole Property CEO Michael Yardney said the rentvesting trend was likely to continue because it helped people who moved around a lot for work, travelled for long periods, and wanted to live in suburbs that were priced out of their buying budget.

“Rentvesting suits the lifestyle of many millennials, allowing them flexibility in where they live, giving them the opportunity to travel and at the same time grow their wealth,” he said.

“It’s a lifeline for those who are trying to gain a foothold in a property market that’s essentially a moving target.”

Mr Yardney said the traditional belief that “rent money is dead money” was a sticking point for some people, but renting while investing could be used as part of an effective overall investment strategy.

Source: http://www.news.com.au/finance/money/investing/investing-while-renting-is-a-growing-trend-for-real-estate-owners/news-story/6087848b1c77d079bfdc7881590d3cfe

In recent years we have seen a trend that seems to cut through this hurdle for first home buyers. Particularly popular amongst millennials, rentvesting is a trend that suits savvy first time investors who would like to enter the property market without sacrificing their desire to live in the suburb of their dreams.

The term ‘rentvesting’ refers to the investment option in which property buyers invest in an affordable suburb while continuing to rent and live in a suburb they prefer. The trend is not only a last resort option for investors that are financially locked out of their preferred suburbs, it can also enable investors to make smarter property investment decisions. As Australian house prices continue to rise and rental yields steadily fall, rentvesting is becoming a wise investment option for many different types of investors.

How to build a property portfolio through rentvesting

Creating a thriving property portfolio through rentvesting relies on maintaining a smart investment strategy.

1. Choose the right property and area in which to invest. It’s important to select an area with large growth potential. Understanding the property market cycle will help you identify a suburb’s growth phase. Depending on the area, you may also want to consider a property’s proximity to schools and the property’s walkability score.
2. Consider your own rental expenses. Calculating your rental expenses against your investment property’s rental yields and future capital gains will help you to calculate affordability and potential investment return.
3. Get your tenants to pay your mortgage. The aim of a wise rentvesting strategy should be to have your rental returns paying off the majority of your mortgage repayments. This will allow for more financial flexibility.
4. Seek professional advice. The most important step to making successful property investment decisions is to speak to a professional advisor. A property advisor will help you identify ideal suburbs in which to invest and can help you to create a tailored property investment strategy.

If you would like some advice for creating your own rentvesting strategy, talk to CPS Finance today.

Rent where you love

Rentvesting presents the perfect opportunity for people who cannot afford to buy where they live. If you’re a renter, the major advantage you have is the ability to live where you want to live. Not only is renting a more flexible option, it’s also not as permanent a decision, which means you can suss out a location to see if it suits you and your lifestyle. With rental markets softening, tenants are now able to get more bang for their buck – which means you can afford to upgrade your living situation whether it be amenities, aesthetics or location.

Save what you can

With less responsibility, comes fewer expenses. As a tenant you are not required to pay land tax, strata fees, management fees or water rates. Sure, if you’re an investor you will, but this is all tax deductible. Being a renter also allows you to adjust your budget depending on your financial situation. If you want to save for a holiday you can simply downgrade your living arrangements, or if you get a new job, you can pack up and move closer to work. You’ll also avoid losing cash when buying and selling property through legal fees, selling costs and stamp duty.

Use your head

Invest with your head, so you can live with your heart. An investment should never be an emotional decision, but rather a logical financial decision that will maximise your wealth over time. It’s important that you seek professional advice to understand your long term objectives, and set a strategy in place from the forefront. In order for rentvesting to be effective, you must analyse the environment you’re in and determine how you can maximise your rental returns and capital growth.

To understand more about rentvesting, or to discuss what investment options are available to you, contact CPS Finance today.