Where to Find Good Property Investment Deals
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I should probably start off with a caveat:
This blog post is a follow up to, Your Mortgage is a Poverty Trap.
Property investment rules are not the same everywhere, so I will keep this post high level and aim to teach you how to think like a property investor as opposed to laying out a detailed map of how you can go about getting started.
Moreover, I will almost always opine on one property investment strategy: Buy-to-Let.
Do not apply this approach to any other of the myriad of property investment strategies out there. I will write about where to find other property investment deals in later posts.
First, A Law of Basic Economics
First, let us revisit some basic economics principles: If I have five bananas and 200 willing buyers then I can increase the price at which I sell these because I am spoilt for choice with regards to buyers; If I have 200 bananas and five willing buyers, my buyers get to control the price, moreover, best I can hope to sell to one buyer is probably 20 bananas anyway.
Let’s keep that little nugget in the back of our minds as we explore this post.
Let’s Define Property Investment
We should probably quickly iron out what makes a property purchase an investment. Let us clarify what I mean when I say property investment within the buy-to-let strategy:
A property purchase that would need to be subsidized is not in my view an investment. Said differently, if your tenant pays the mortgage and you pay for rates and taxes, levies and insurance your property is a liability.
I have heard far too many people speak of having to subsidize a property for five to seven years before it breaks even and still call it an investment. Five years is a massive opportunity cost in this space and I wouldn’t want to spend all that time tied to one property and not be able to scale my portfolio.
A real investment makes you money from the onset. That is to say, the rental that you collect is more than the mortgage repayment, rates and taxes, levies, insurance, and property management fees at the beginning of your investment.
And yes, these deals do exist.
Where do you find them?
Find an area that has a high occupation density but not many eager buyers.
In my country that would be the downtown CBD (Central Business District) of Johannesburg, a once upmarket area that has become dated because modern buildings with better infrastructure have stolen away big corporations and middle-class families. What was once the pride of the country has become run down, shady and for the most part, not the safest place to be.
People who qualify for mortgages would not want to live there and the people who live there don’t qualify for mortgages.
Look for This Kind of Relationship Between Renters & Buyers
This creates a beautiful situation where buyers are scarce and this the prices need to be lowered while at the same time there is a large rental market because it is central to pretty much everything that people will need. This is the perfect setup to collect decent rent and not have to worry too much about
Another area that has a similar set up is what is referred to in my country as the townships.
You can use this profile, “Unattractive to home buyers, yet densely populated”, to identify places near to you that fit this description. These are the perfect circumstances under which to hope to be cash flow positive from the inception of your property investment and to find these kinds of deals regularly. This is not where the glitz and glamour is but it is where the margins (for buy-to-let) are.
The profit, in numbers, may not be exciting, but the profit margins are thicker. This means that for you to make good money, you have to turn it into a volumes game.
In Conclusion
You need to go against the grain with your finances if you want to win financially. If the school system knew how to teach wealth, you would have probably been rich by now.
You need to look around you and see what opportunities you can take advantage of and convert into wealth.
About Me
Mechanical Engineer,
turned Financial Advisor,
turned Personal Finance Blogger.
I learned early on in my career that it doesn’t matter how much money you make if you don’t know how to spend it and make it work for you.
Reading about personal finance, business and entrepreneurship became my passion. I knew that if I wanted to be successful, I would need to learn how to sell.
I quit my engineering to become a Financial Advisor, earning on commission only, to learn about money.
Here, I share what I have learned with you.
