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Investors are constantly chasing capital growth,
and the faster they can get it, the better â€“ but is it
really possible to create â€˜instant equityâ€™? The
goal of every property investor revolves around
creating equity. Ultimately we want to create as
much equity as possible in the shortest possible
timeframe, and we want to do so safely.
And the traditional, well-trodden path is to invest in the
right property in the right locations. Properties and
locations that you believe are more likely than others
to increase in value.
Of course other considerations have to be taken into
account. Factors such as cash flows, borrowing
capacity, risk factors and many more.
But then, ultimately, itâ€™s a waiting game. You need
time to have its effect on the property market, and
your property in particular. Youâ€™re waiting for the magic
formula of house price inflation times leverage to
increase your net equity position.
And itâ€™s basically a race against the clock. Can you
accumulate sufficient equity fast enough? That is;
enough equity to retire much sooner and much
wealthier than you otherwise would.
Unfortunately the answer for the vast majority of
investors is no. They canâ€™t do it fast enough.
We know this because data from the ATO tells us
that of the 8% of Australians who own investment
property, 73% only own only one and 90% own either
one or two.
And one or two properties is generally not enough to
retire on. Even if they were unencumbered, two
$400,000 properties would only yield a gross
retirement income of roughly $40,000 per annum.
Thatâ€™s hardly a retirement income that most would
So what is required is a way to speed the process up.
A kind of time machine if you will; one that enables
investors to accumulate more equity, and to
accumulate that equity faster.
So, sensibly, many investors go prospecting for these
rare gems. Properties on which the rate of
accumulation of equity is much faster than on
traditional property. Ideally the accelerated rate at
which the equity can be accumulated comes at the
early stages of the propertyâ€™s life, when the property
is first purchased.
This is called Instant Equity investing, or sometimes
manufactured equity, and it is, or should be, the holy
grail for every property investor. Why wait around for
the market to reward you, when, by being smarter
than the average investor you can create your own
In fact there are many ways that investors can
manufacture their own equity.
The main ones include renovation, developing, finding
â€˜motivatedâ€™ sellers, using buyerâ€™s agents and
networking. Choosing which method is right for you
will depend on a number of factors, mostly factors that
relate to you and your own specific circumstances
more than they relate to the property market. It usually
comes down to the three factors of; time, expertise
Renovating and networking generally take a lot of
time. And as most investors are working full-time jobs
and have other commitments such as family matters,
time poor people can often struggle to find the deals
or get around to doing the renovations, particularly
when they are effectively competing against others
who can afford to do this full time.
Development takes money and usually takes investors
to a risk level beyond that of a passive investor.
And finally using a buyerâ€™s agent takes money.
You have to be convinced that your chosen buyerâ€™s
agent will save you so much there is still equity in it for
you after paying their fee.
The good news is that the answer to the question
posed in the title of this article: Can Instant Equity
REALLY Be Achieved?… is YES it can. We see people
every week buying below market value and, critically,
being able to access that equity immediately at
settlement, within a week or even a day, rather than
having to wait years for markets to grow.
Reprinted from The Professionals Corporate Newsletter (Real News November 2014) – source article Smart Property Investment
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