Being an “employee” isn’t the flavour of the month these days. In the age of Uber and Facebook it’s much more on trend to have your own startup or be building your own business. Entrepreneurship is the new black – freedom, fun and billion dollar valuations.
But what about the other 99% who go to work for ‘the man’? What about the regular employee who keeps the wheels turning for companies large and small to make sure there is food on the table and the kids are in good schools?
In this age of entrepreneurship, one of the most effective ways that I’ve seen for employees to create a business “on the side” is to get involved in property.
Property investing is low risk and requires very little time and effort once the property is purchased which is perfect when you’re working 5 days a week and have to take care of the kids on the weekend. It also allows you to create additional wealth that you might not have access to while you’re climbing the corporate ladder.
You see, the fundamental element in being able to buy property is the ability to borrow money, and in order to do that you need to have 2 things – a deposit, and the ability to service that debt (regular income).
While the deposit often comes through savings or equity, many people overlook the fact that regular income is often the domain of the employee rather than a business owner.
I can’t tell you how difficult it is to make a budget when you’re a business owner and your income fluctuates every month. While a regular pay cheque is something that you may take for granted, as an employee you have the ability to service your loan over the long-term compared to a start-up entrepreneur who’s putting it all on the line (read: high-risk) and may not have a consistent income to repay their loans.
Regular pay cheques also allow you to create a reliable budget and put aside an amount for investing each month. For this reason alone, banks typically love employees and are more than happy to lend based on that regular income.
So if you thought that guy who left the office to launch a new app is about to buy that house on the harbour, think again. Banks typically hate start-ups and new business owners. They’re high-risk and typically have no proven income to service the debt.
Only recently I met an investor who had over 15 properties in his portfolio who told me that he never would have made it to that point if he had been a business owner. He knew that if he wanted to achieve his goals of building a sustainable portfolio, he had to give up the prospect of owning a business and go back to corporate life. It was the only way the bank would consider his ability to repay the loan – he needed that payslip.
My message here is not against business owners. Australia is full of business owners who have made a success of their business and have a track record over many years that prove their ability to repay their loans.
As an employee though, it’s easy to overlook the security and stability that a regular income provides. Banks love the consistent pay cheque coming in every month and that makes it an ideal scenario to get involved in the property market.
It also provides an avenue that most entrepreneurs are out their chasing – freedom and wealth. Build a sustainable, long-term portfolio and you may achieve the financial freedom that many start-up entrepreneurs are chasing every day.