Owning property can provide a nice steady income but before the money comes rolling in, you have to own it first. Despite property being viewed as an asset, before it is paid off and actively generating an income it can feel more like a liability. In fact some would argue that a property remains a liability as you always seem to be spending money on it one way or another. So how do you turn a profit from owning property?
Investing in property is not a get rich quick scheme but everyone needs to live somewhere and as opposed to renting you are spending time and money on developing/paying off your own asset. Over time a rental agreement will increase according to inflation costing the tenant more to remain on the property.
Paying off a bond reduces the capital amount and as salaries increase with inflation your repayments will effectively be reduced, or to put it another way, over time you will have more money at the end of the month.
This extra ‘income’ can be put to good use to settle the loan debt faster or to increase/maintain the value of the property.
Once the bond has been paid off your income increases greatly but an income from your property will not be realised if you remain on the property.
But for a property to actively generate a steady income you need to rent it out. However, moving out of your home into a rental property while you rent out your property, is not an effective strategy. A better way would be to buy a second property at a lower or similar value to your current property and rent that property out. The tenant’s rental payments are then used to contribute to paying off the new bond.
It is likely that there will be a shortfall between the rental payments and the bond repayments that you will have to cover. So now both the assets will cost you money, as you still have costs attached to the original property, rates, etc. and need to maintain the second property to keep its value.
If there is no shortfall or you have sufficient income, deplete the second property bond over a shorter period of time by paying in over and above the rental income earned.
Remember – a rental property that is not maintained by the owner or is left unoccupied is significantly reducing the return on your investment.
Proceed in this manner with a good economy, rising property values and increasing demand for rental properties, as the banks have put the brakes on home loans issued, and your assets will eventually provide you with a nice income.