Real Estate Investing On a Single Income
If you think your income is the only thing stopping you from investing in property, you might want to think again.
Published by Terry Ryder for the Australian Proeprty Investor Magazine for June 2007. For families on a single income or single people with low incomes, it must seem like a consipiracy to deny them access to the property real estate market. High prices, low affordability, rising interest rates, high buying costs. It’s easy to believe it’s just too hard to get into the real estate property market unless you’re a couple with dual incomes or a highly-paid individual. But there are still plenty of options for wannabe investors whose incomes present barriers to getting into the market.
Lisa Montgomery, head of consumer advocacy for Resi Mortgage Corporation, says single people buying real estate alone is a growing trend. People are getting married later, if at all, and many are driven by a desire for independence, including the growing numbers of women buying real estate. “some people think that because they’re single they won’t qualify for a loan or that it will be too onerous to maintain an investment,” she says.
“I always say to people: if you’ve done your sums and you’re comfortable with the numbers, but finding it difficult to take that big step, remember you can sell a property real estate if there’s an issue that crops up or a change in your circumstances.”
Investment adviser and property author Margaret Lomas says it’s challenging for people on a single or low income, but not impossible. These are real estate opportunities for people, particularly if they have some equity in their home. Lomas says low-income earners can’t afford to take big risks and the reality is they have smaller borrowing capacity. But that doesn’t mean they can’t put together a property portfolio of real estate over time.
“It’s amazing how much more they can achieve, compared with somebody who doesn’t do anything,” she says. “they will have a borrowing capacity. It won’t be what they would like it to be and they can’t buy high-end property or middle-of the road property and they may not be able to buy many real estate properties. But they will be able to create a property portfolio.”
Here’s a short list of important considerations that can make a difference for people in this situation:
• Have realistic expectations of what you need
• Check out the “ugly duckling” suburbs
• Find positive cash flow properties
• Understand what matters to financiers
• Consider a shared equity loan
• Consider low-doc loans
• Take a longer term to lower payments
• Buy property with others
Lomas says the biggest hurdle is the mismatch between expectations and reality. “they have to understand they can’t aim too high – but nor do they need to espair,” she says. “Providing they understand what their capacity is and aim for lower-end properties, they can be successful property investors. “Unfortunately, we have people running courses on how to buy a hundred properties in six minutes – and writing books that suggest that becoming rich means you have to borrow a huge amount and have low-doc loans. It creates a perception that success in property investing is about accumulating huge numbers of properties in a short period of time.
“The reality is most people don’t need that many investment real estate properties. But they do need a little bit of time. Single or low-income earners can buy a couple of real estate investment properties over time, sit on them and wait until time does its thing.”
Lomas says someone earning $30,000 faces the prospect of retiring on an annual pension of $18,000. To maintain their existing lifestyle in retirement, they need to create additional income of $12,000. “They really only need $300,000 worth of real estate, returning just 4 per cent or 5 per cent, to create that $12,000,” Lomas says. “If you think of it that way, it’s possible for a person to buy one, two or three properties in ugly duckling suburbs and over 10 years they should go up in value by $50,000 to $100,000. And then they’ve crated the portfolio they need to make up the difference between the age pension and what they’re earning at the moment.”
The frequent publicity about the affordability crisis can create the impression that no-one can get into the real estate market any more. That’s simply not true. Every major city, including Sydney, has areas with affordable homes, and if people are buying for investment, the whole of Australia is their market: there are numerous regional centres with solid economies where typical homes are within reach of most people.
Lomas urges people with limited incomes to look for opportunities of real estate investment in the ugly duckling suburbs. These are the areas that have cheap homes but also have tangible reasons to grow and evolve into better locations. She says you can find acceptable investment real estate properties with buy-in prices as low as $110,000 or $120,000. And the returns tend to be higher, which helps in getting finance.
“Even on a low income, with the higher rent returns in these areas, its’ likely that they’ll be able to get a bank to lend to them,” Lomas says. Montgomery agrees compromise is needed. “Sometimes you may need to compromise on the type of property or indeed the area,” she says. “You may be thinking the river bank in Brisbane or the Lower North Shore in Sydney, but your income doesn’t allow you the luxury of investing in these areas. “The areas where you can afford to buy may not be close to wehre you live. A lot of Sydney people have purchased property in Newcastle – and I’m one of them. There are lower prices there and the returns are better.”
Montgomery says another option is buying a unit or townhouse, usually cheaper than a house on land. The median house price for houses in Chatswood (Sydney) is around $900,000, but apartments costs half as much. At the other end of the spectrum, in Beenleigh (halfway between Brisbane and the Gold Coast) typical houses costs $250,000 but units only $160,000.
Teresa Whitby, who works at Lomas’ Destiny Financial Solutions, was a low-income earner when she started out with property investment. She began building a real estate investment portfolio by buying property at the low end of the market. Five years later, she’s now buying her eight property andnone of them have cost more than $130,000. A useful website on urban living experiences in new communities in online.
“Borrowing capacity has been an issue for her all the way and sometimes she hasn’t been able toborrow when she’s wanted to,” says Lomas. “But lending criteria change and very time that’s happened, she’s been able to add a low-cost property to her portfolio She’s had some good growth as well. She now has eight properties and all she needs to do is sit on those eight properties. She’s only 45 and in another 10 years she’ll have at least $1 million in equity.
“At a modest 5 per cent return, that would give her $50,000 in income and it will be non-taxable. That’s more than what she and her husband are earning after tax at the moment.”
Published by Terry Ryder for the Australian Proeprty Investor Magazine for June 2007. For families on a single income or single people with low incomes, it must seem like a consipiracy to deny them access to the property real estate market. High prices, low affordability, rising interest rates, high buying costs. It’s easy to believe it’s just too hard to get into the real estate property market unless you’re a couple with dual incomes or a highly-paid individual. But there are still plenty of options for wannabe investors whose incomes present barriers to getting into the market.
Lisa Montgomery, head of consumer advocacy for Resi Mortgage Corporation, says single people buying real estate alone is a growing trend. People are getting married later, if at all, and many are driven by a desire for independence, including the growing numbers of women buying real estate. “some people think that because they’re single they won’t qualify for a loan or that it will be too onerous to maintain an investment,” she says.
“I always say to people: if you’ve done your sums and you’re comfortable with the numbers, but finding it difficult to take that big step, remember you can sell a property real estate if there’s an issue that crops up or a change in your circumstances.”
Investment adviser and property author Margaret Lomas says it’s challenging for people on a single or low income, but not impossible. These are real estate opportunities for people, particularly if they have some equity in their home. Lomas says low-income earners can’t afford to take big risks and the reality is they have smaller borrowing capacity. But that doesn’t mean they can’t put together a property portfolio of real estate over time.
“It’s amazing how much more they can achieve, compared with somebody who doesn’t do anything,” she says. “they will have a borrowing capacity. It won’t be what they would like it to be and they can’t buy high-end property or middle-of the road property and they may not be able to buy many real estate properties. But they will be able to create a property portfolio.”
Here’s a short list of important considerations that can make a difference for people in this situation:
• Have realistic expectations of what you need
• Check out the “ugly duckling” suburbs
• Find positive cash flow properties
• Understand what matters to financiers
• Consider a shared equity loan
• Consider low-doc loans
• Take a longer term to lower payments
• Buy property with others
Realistic Expectations in real estate investing
Lomas says the biggest hurdle is the mismatch between expectations and reality. “they have to understand they can’t aim too high – but nor do they need to espair,” she says. “Providing they understand what their capacity is and aim for lower-end properties, they can be successful property investors. “Unfortunately, we have people running courses on how to buy a hundred properties in six minutes – and writing books that suggest that becoming rich means you have to borrow a huge amount and have low-doc loans. It creates a perception that success in property investing is about accumulating huge numbers of properties in a short period of time.
“The reality is most people don’t need that many investment real estate properties. But they do need a little bit of time. Single or low-income earners can buy a couple of real estate investment properties over time, sit on them and wait until time does its thing.”
Lomas says someone earning $30,000 faces the prospect of retiring on an annual pension of $18,000. To maintain their existing lifestyle in retirement, they need to create additional income of $12,000. “They really only need $300,000 worth of real estate, returning just 4 per cent or 5 per cent, to create that $12,000,” Lomas says. “If you think of it that way, it’s possible for a person to buy one, two or three properties in ugly duckling suburbs and over 10 years they should go up in value by $50,000 to $100,000. And then they’ve crated the portfolio they need to make up the difference between the age pension and what they’re earning at the moment.”
Finding Affordable Investment Property
The frequent publicity about the affordability crisis can create the impression that no-one can get into the real estate market any more. That’s simply not true. Every major city, including Sydney, has areas with affordable homes, and if people are buying for investment, the whole of Australia is their market: there are numerous regional centres with solid economies where typical homes are within reach of most people.
Lomas urges people with limited incomes to look for opportunities of real estate investment in the ugly duckling suburbs. These are the areas that have cheap homes but also have tangible reasons to grow and evolve into better locations. She says you can find acceptable investment real estate properties with buy-in prices as low as $110,000 or $120,000. And the returns tend to be higher, which helps in getting finance.
“Even on a low income, with the higher rent returns in these areas, its’ likely that they’ll be able to get a bank to lend to them,” Lomas says. Montgomery agrees compromise is needed. “Sometimes you may need to compromise on the type of property or indeed the area,” she says. “You may be thinking the river bank in Brisbane or the Lower North Shore in Sydney, but your income doesn’t allow you the luxury of investing in these areas. “The areas where you can afford to buy may not be close to wehre you live. A lot of Sydney people have purchased property in Newcastle – and I’m one of them. There are lower prices there and the returns are better.”
Montgomery says another option is buying a unit or townhouse, usually cheaper than a house on land. The median house price for houses in Chatswood (Sydney) is around $900,000, but apartments costs half as much. At the other end of the spectrum, in Beenleigh (halfway between Brisbane and the Gold Coast) typical houses costs $250,000 but units only $160,000.
Teresa Whitby, who works at Lomas’ Destiny Financial Solutions, was a low-income earner when she started out with property investment. She began building a real estate investment portfolio by buying property at the low end of the market. Five years later, she’s now buying her eight property andnone of them have cost more than $130,000. A useful website on urban living experiences in new communities in online.
“Borrowing capacity has been an issue for her all the way and sometimes she hasn’t been able toborrow when she’s wanted to,” says Lomas. “But lending criteria change and very time that’s happened, she’s been able to add a low-cost property to her portfolio She’s had some good growth as well. She now has eight properties and all she needs to do is sit on those eight properties. She’s only 45 and in another 10 years she’ll have at least $1 million in equity.
“At a modest 5 per cent return, that would give her $50,000 in income and it will be non-taxable. That’s more than what she and her husband are earning after tax at the moment.”
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