I can’t keep track of the number of times I’ve heard friends moan and groan, “how the hell do I afford to buy a property???” 🙄
I have no bloody idea, so I had a chat with my friend Ari who very kindly let me pick his brain on what he knows about investing in property. He amassed a $2 million property portfolio by the time he was 25. So yeah. I’ll let him do the talking. 💁🏻
Me: Why did you start investing in property?
Ari: Yes, the why is very important. Well, because I wanted financial freedom. I read Rich Dad Poor Dad when I was 16 (me: 😱), and the concept of the Cashflow Quadrant was life-changing.
After that, I knew that I didn’t want to be an employee. I wanted to be an investor because people who run a business will still eventually become investors.
>> Hold up. What is the Cashflow Quadrant???
The Cashflow Quadrant represents the different ways people can earn money. E stands for employee, S for self-employed, B for business owner and I for investor.
If you’re on the left side (E or S), it’s gonna be very hard to build wealth.
Not impossible, but hard. You have a j-o-b (*yawn*) and you can work your ass off, but you’ll be chained to your salary (i.e. if you stop working, the money stops coming in) and be heavily reliant on a sense of “job security”.
The moment your boss doesn’t like the look of your face, you’re screwed.
The worst thing is taxes!! When you earn, you get taxed. When you save, you get taxed. And the really miserable amount of interest you get from your savings is easily wiped out by inflation.
Plus, the more successful you get, the higher your income and the higher your taxes. It’s also likely that you’ll have less time to do stuff that you wanna do and be with your loved ones.
It’s quite possible to achieve financial security on this side of the quadrant, but it’s very hard to achieve financial freedom – i.e. to not have to work for money.
If you’re on the right side (B or I), it’s much easier for you to reach financial freedom.
As a business owner, you own a system and people work for you, so you could be living it up by the beachside while your business is still running and generating revenue. Obviously, it takes a lot of hard work upfront to build the system in the first place, but the payoff could be huge!
Finally, as an investor, your money works for you. Yeah, imagine cute little minions making money for you while you sleep! When you’re not exchanging time for money, you can achieve financial freedom.
Reading Rich Dad Poor Dad really is life-changing. It doesn’t just teach you about money, it teaches you about life. I would highly recommend that you read it!
Me: Did you have a goal?
Ari: Yeah, my goal was to retire before 30, so that I didn’t have to work for money and could do whatever I wanted.
One of my idols is Arnold Schwarzenegger. His book Total Recall was phenomenal. He became a millionaire through investing in property. He wanted to have creative control over his work and not have to accept an acting role for the sake of the money. (You can read more about how Arnold used property to achieve financial freedom and be able to focus on his acting career here.)
Me: How did you figure out what to do to get started?
Ari: I looked at shares and ETFs, as well as active trading, like in forex and stuff… I had a good technical understanding of these things since I studied finance. Looking at the data, there weren’t many people who were making money in trading. Most of the people who were making money were passive investors, like those who invest in ETFs.
With property, the main attraction was the fact that you get to control the return. You don’t get to control the return of shares and stuff because that just depends on how the business performs. So if you invest in property, you can optimise the returns.
Let’s take a simple example. You could invest $100,000 in shares for 1 year and get a 10% return and make $10,000. Or, you could take the same $100,000 and leverage it and buy property worth $1,000,000 and if that property has the same return of 10%, you can make $100,000. So it just makes more sense.
You can rarely leverage so much for stocks. We’re fortunate in Australia since banks are willing to lend so much money for mortgages – up to around 80% now. In the US it’s only 20-50%, and some countries are cash-only!
Me: Do you invest in apartments or houses, or both?
Ari: I only invest in houses. You have less control with apartments. You have to deal with strata and ask permission if you want to make any changes.
With a house, you can do whatever you want with it – paint the walls pink if you want! Maybe you’ll just have to deal with council if you want to do any major work. Also, in a building with a lot of homogenous apartment units, it’s easy for prices to go down.
Me: When do you intend to sell your property?
Ari: Whenever I need the money. You always need a goal when you’re thinking about investing in property. Say, you want $100,000 a year in passive income from rent. Assuming a return of roughly 5%, you’ll need to have $2,000,000 worth of property that you own outright (i.e. you don’t have a loan to pay off).
Most people with multiple properties tend to just sell some to pay down their loans on the rest and keep them for their rental income.
It’s a good idea to work out how much money you need to fund your lifestyle. For me, I don’t need more than $50,000 a year, so if I earn more than that, I won’t have to worry. You don’t need much money to survive and have a good time in life.
Me: Are you thinking of living in any of those properties?
Ari: Nope. I don’t intend to buy my own home, ever. In my opinion, renting makes way more financial sense than buying.
When you buy for investment, you can claim any losses from costs like interest, depreciation and travel expenses. This is really beneficial for high-income earners because often the losses are greater than the rental income, and you can claim a lot of the losses back from the government.
But when you buy for yourself, you’re sinking money (your deposit and cash flow from having to repay your mortgage) into an asset that gives you no tax benefits and limits how much you can borrow.
So unless you really, really want to buy a house because you want to settle down with your family and not have to move, it’s better to buy to invest. Your weekly cash flow is going to be better when you’re renting.
Me: What advice would you give to people looking to get started?
Ari: Eat less smashed avocados! (Me: 😱 Hell no!) Once you know the end goal and you have an established timeframe for when you want to reach it, it’s all just about saving up for the deposit by increasing your income or decreasing your expenses.
Before you jump into it, you really need to think about WHY you’re doing it.
I reached my goal of owning $2,000,000 worth of property at around 25-26 years old. If I had kept going, I would’ve built my portfolio up to $5,000,000 by the time I turned 30.
But I stopped buying property. I stopped because I realised that I had done it for all the wrong reasons, and in the pursuit of the money, I wasn’t feeling fulfilled.
I wasn’t contributing to anyone else but myself and I realised that I didn’t really have anything to do with all that money. So now, I don’t even think about the goal of financial freedom anymore. It doesn’t cost much to live and be happy and help people.
Me: I have to ask this question… What would you do if you were given $1,000,000? I mean, just about everyone I ask immediately answers, “invest in property”.
Ari: Man, I don’t know. (*thinks for a bit*) Buy lots of chocolate and give it to people. On the condition that if they eat and enjoy the chocolate, they need to pass on the chocolate love to someone else and make their day better.
Me: Awwww, sweet! Okay, final question. Do you have any resources you’d recommend for someone who would like to learn more about investing in property?
Ari: Besides Rich Dad Poor Dad, I would recommend the following books:
- Rich Dad’s CASHFLOW Quadrant: Rich Dad’s Guide to Financial Freedom – Robert Kiyosaki
- From 0 to 130 Properties in 3.5 Years – Steve McKnight
- The Truth About Positive Cash Flow Property – Margaret Lomas
- Building Wealth Through Investment Property – Jan Somers
- Seven Steps To Wealth – John L. Fitzgerald
This will get anyone about 80% of the way. The other 20% comes from networking and mentoring. I would recommend PropertyChat – it’s the best forum to find other investors and ask any questions.
A big thank you to Ari for generously giving up his time and sharing all of his wisdom! I hope this provides a good starting point for y’all when you’re thinking about investing in property.
If you know of anyone who would benefit from reading this, please share this post!