Should I start investing in property with $10,000 deposit and $35,000 annual wage
You want to buy a house for $150,000.  It may be possible to do this with $10,000 and a 3.5% downpayment, but it would be a lot better to have $40,000 and make a 20% downpayment.  That would give you a cushion in case house prices fall, and there are often advantages to a 20% downpayment (lower rate; less mandatory insurance).   You have an income of $35,000 and expenses of $23,000 (if you are careful with the money--what if you aren't?).  You should have savings of either $17,500 or $11,500 in case of emergencies.  Perhaps you simply weren't mentioning that.  Note that you also need at least $137 * 26 = $3562 more to cover mortgage payments, so $15,062 by the expenses standard.  This is in addition to the $40,000 for downpayment and closing costs.   What do you plan to do if there is a problem with the new house, e.g. you need a new roof?  Or smaller expenses like a new furnace or appliance?  A plumbing problem?  Damages from a storm?  What if the tenants' teenage child has a party and trashes the place?  What if your tenants stop paying rent but refuse to move out, trashing the place while being evicted?  Your emergency savings need to be able to cover those situations.   You checked comps (comparable properties).  Great!  But notice that you are looking at a one bathroom property for $150,000 and comparing to $180,000 houses.  Consider that you may not get the $235 for that house, which is cheaper.  Perhaps the rent for that house will only be $195 or less, because one bathroom doesn't really support three bedrooms of people.   While real estate can be part of a portfolio, balance would suggest that much more of your portfolio be in things like stocks and bonds.  What are you doing for retirement?  Are you maxing out any tax-advantaged options that you have available?  It might be better to do that before entering the real estate market.   I am a 23 year old Australian man with a degree in computer science and a steady job from home working as a web developer. I'm a bit unclear on this.  What makes the job steady?  Is it employment with a large company?  Are you self-employed with what has been a steady flow of customers?  Regardless of which it is, consider the possibility of a recession.  The company can lay you off (presumably you are at the bottom of the seniority).  The new customers may be reluctant to start new projects while their cash flow is restrained.  And your tenants may move out.  At the same time.  What will you do then?   A mortgage is an obligation.  You have to pay it regardless.  While currently flush, are you the kind of flush that can weather a major setback?  I would feel a lot better about an investment like this if you had $600,000 in savings and were using this as a complementary investment to broaden your portfolio.  Even if you had $60,000 in savings and would still have substantial savings after the purchase.  This feels more like you are trying to maximize your purchase.  Money burning a hole in your pocket and trying to escape.   It would be a lot safer to stick to securities.  The worst that happens there is that you lose your investment (and it's more likely that the value will be reduced but recover).  With mortgages, you can lose your entire investment and then some.  Yes, the price may recover, but it may do so after the bank forecloses on the mortgage. In general people make a few key mistakes with property: 1) Not factoring in depreciation properly. Houses are perpetually falling down, and if you are renting them perpetually being trashed by the tenants as well - particularly in bad areas. Accurate depreciation costs can often run in the 5-20% range per year depending on the property/area. Add insurance to this as well. 2) Related to 1), they take the index price of house price rises as something they can achieve, when in reality a lot of the house price 'rise' is just everyone having to spend a lot of money keeping them standing up. No investor can actually track a house price graph due to 1) so be careful to make reasonable assumptions about actual achievable future growth.  3) Failure to price in the huge transaction costs (often 5%+ per sale) and capital gains/other taxes (depends on the exact tax structure where you are). These add up very fast if you are buying and selling at all frequently. 4) Costs in either time or fees to real estate rental agents. Having to fill, check, evict, fix and maintain rental properties is a lot more work than most people realise, and you either have to pay this in your own time or someone else’s. Again, has to be factored in. 5) Liquidity issues. Selling houses in down markets is very, very hard. They are not like stocks where they can be moved quickly. Houses can often sit on the market for years before sale if you are not prepared to take low prices. As the bank owns your house if you fail to pay the mortgage (rents collapse, loss of job etc) they can force you to fire sale it leaving you in a whole world of pain depending on the exact legal system (negative equity etc). These factors are generally correlated if you work in the same cities you are buying in so quite a lot of potential long tail risk if the regional economy collapses. 6) Finally, if you’re young they can tie you to areas where your earnings potential is limited. Renting can be immensely beneficial early on in a career as it gives you huge freedom to up sticks and leave fast when new opportunities arise. Locking yourself into 20yr+ contracts/activities when young can be hugely inhibiting to your earnings potential – particularly in fast moving jobs like software development.  Without more details on the exact legal framework, area, house type etc it’s hard to give more specific advise, but in general you need a very large margin of safety with property due to all of the above, so if the numbers you’re running are coming out close, it’s probably not worth it, and you’re better of sticking with more hands off investments like stocks and bonds. I would strongly, strongly advise against it. Others here are answering the question of, having decided to invest in property, how one ought to ensure that one invests in the right property. What has not really been discussed here is the issue of diversification. There are a number of serious risks to property investment. In fact, it is one of the riskiest types of investment. You face more of almost every type of risk in property than maybe any other asset class. It is one thing to take on those risks as part of a diverse portfolio including other asset classes. It is quite another - extremely irresponsible - thing to take on those risks as your sole investment, when your portfolio is in its infancy. So no, do not invest in property when you lack any other investments. Absolutely not. "I want to caveat that I am not an active investor in Australia, you most likely should seek out other investors in your market and ask them for advice/mentorship, but since you came here I can give you some generalized advice.  When investing in real estate there are a two main rules of thumb to quickly determine if the property will be a good investment. The 50% rule and the 2% (or 1%) rule.   The 50% rules says that in general 50% if the income from the property will go to expenses not including debt service.  If you are bringing in $1000 a month 500 of that will go to utilities, taxes, repair, capital expenditures, advertising, lawn care, etc. That leave you with 500 to pay the mortgage and if anything is left that can be cash flow.  As this is your first property and it is in "" a relatively bad neighbourhood"" you might consider bumping that up to 60% just to make sure you have padding. The 1 or 2% rules says that the monthly rent should be 1(or 2) percent of the purchase price in this case the home is bought at 150,000.  If the rent is 1,500 a month it might be a good investment but if it rents for 3,000 a month it probably is a good investment.  There are other factors to consider if a home meets the 2% rule it might be in a rough neighborhood which increases turnover which in general is the biggest expense in an investment property.  If a property meets one or both of these rules you should take a closer look at it and with proper due diligence determine that it is a deal.  These rules are just hard and fast guidelines to property analysis, they may need to be adapted to you market.  For example these rules will not hold in most (all?) big cities."
I would suggest you to put your money in an FD for a year, and as soon as you get paid the interest, start investing that interest in a SIP(Systematic investment plan). This is your safest option but it will not give you a lot of returns. But  I can guarantee that you will not lose your capital(Unless the economy fails as a whole, which is unlikely).  For example: - you have 500000 rupees. If you put it in a fixed deposit for 1 year, you earn 46500 in interest(At 9% compounded quarterly). With this interest you can invest Rs.3875(46500/12) every month in an SIP for 12 months and also renew your FD, so that you can keep earning that interest.So at the end of 10 years, you will have 5 lacs in your FD and Rs. 4,18,500 in your SIP(Good funds usually make 13-16 % a year). Assuming your fund gives you 14%, you make: -  1.) 46500 at 14% for 9 years - 1,51,215 2.)8 years - 1,32,645 3.) 7 years - 1,16,355 4.) 6 years - 1,02,066 5.) 5 years - 89,531 6.) 4 years - 78,536 7.) 3 years - 68891 8.) 2 years 60,431 9.) 1 year - 53010 Total Maturity Value on SIP = Rs, 8,52,680 Principal on FD =      Rs 5,00,000 Interest earned on 10th year = Rs. 46,500 Total = Rs. 13,99,180(14 lacs). Please note: - Interest rates and rate of return on funds may vary. This figure can only be assumed if these rates stay the same.:). Cheers! Unfortunately, in this market environment your goal is not very realistic. At the moment real interest rates are negative (and have been for some time).  This means if you invest in something that will pay out for sure, you can expect to earn less than you lose through inflation.  In other words, if you save your $50K, when you withdraw it in a few years you will be able to buy less with it then than you can now. You can invest in risky securities like stocks or mutual funds.  These assets can easily generate 10% per year, but they can (and do) also generate negative returns.  This means you can and likely will lose money after investing in them.  There's an even better chance that you will make money, but that varies year by year.  If you invest in something that expects to make 10% per year (meaning it makes that much on average), it will be extremely risky and many years it will lose money, perhaps a lot of it.  That's the way risk is.  Are you comfortable taking on large amounts of risk (good chances of losing a lot of your money)? You could make some kind of real investment.  $50K is a little small to buy real estate, but you may be able to find something like real estate that can generate income, especially if you use it as a down payment to borrow from the bank.  There is risk in being a landlord as well, of course, and a lot of work.  But real investments like that are a reasonable alternative to financial markets for some people. Another possibility is to just keep it in your bank account or something else with no risk and take $5000 out per year.  It will only last you 10 years that way, but if you are not too young, that will be a significant portion of your life.  If you are young, you can work and add to it. Unfortunately, financial markets don't magically make people rich.  If you make a lot of money in the market, it's because you took a risk and got lucky.  If you make a comfortable amount with no risk, it means you invested in a market environment very different from what we see today. --------- EDIT ------------ To get an idea of what risk free investments (after inflation) earn per year at various horizons see this table at the treasury.  At the time of this writing you would have to invest in a security with maturity almost 10 years in order to break even with inflation.  Beating it by 10% or even 3% per year with minimal risk is a pipe dream. A common rule of thumb is the 28/36 ratio. It's described here. In your case, with a gross (?) salary of £50,000, that means that you should spend no more than 28% of it, or £1,167 per month on housing. You may be able to swing a bit more because you have no debts and a modest amount in your savings. The 36% part comes in as the amount you can spend servicing all your debt, including mortgage. In your case, based on a gross (?) salary of £50,000, that'd be £1,500 per month. Again, that is to cover your housing costs and any additional debt you are servicing. So, you need to figure out how much you could bring in through rent to make up the rest. As at least one other person has commented, the rule of thumb is that your mortgage should be no more than 2.5 - 3 times your income. I personally think you are not a good candidate for a mortgage of the size you are discussing. That said, I no longer live in England. If you could feel fairly secure getting someone to pay you enough in rent to bring down your total mortgage and loan repayment amounts to £1,500 or so a month, you may want to consider it. Remember, though, that it may not always be easy to find renters. Financial advice from good advisers sounds a good idea.  Talk to two or three before taking their advice... their services and advice are surprisingly and sometimes alarmingly diverse.  Gaining money from renting out property is harder than it seems and 10% sounds very ambitious after all costs. Buying abroad especially is a challenge to make money on.. You need to be lucky, and have a strong flair to do it despite all. Bear in mind santander pay 3% on current accounts by the way. Have you ever thought about living abroad somewhere stable or cheap or downsizing. A part time job or low pressure job might top up a limited pension for long enough to find a long term solution while giving you the feeling of starting retirement. Just some thoughts... think it through carefully .. weigh the risks.. be realistic and good luck. Jonjo As user14469 mentions you would have to decide what type of properties you would like to invest in. Are you after negatively geared properties that may have higher long term growth potential (usually within 15 to 20km from major cities), or after positive cash-flow properties which may have a lower long term growth potential (usually located more than 20km from major cities).  With negative geared properties your rent from the property will not cover the mortgage and other costs, so you will have to supplement it through your income. The theory is that you can claim a tax deduction on your employment income from the negative gearing (benefits mainly those on higher tax brackets), and the potential long term growth of the property will make up for the negative gearing over the long term.  If you are after these type of properties Michael Yardney has some books on the subject. On the other hand, positive cash-flow properties provide enough rental income to cover the mortgage and other costs. They put cash into your pockets each week. They don't have as much growth potential as more inner city properties, but if you stick to the outer regions of major cities, instead of rural towns, you will still achieve decent long term growth. If you are after these type of properties Margaret Lomas has some books on the subject. My preference is for cash-flow positive properties, and some of the areas user14469 has mentioned. I am personally invested in the Penrith and surrounding areas.  With negatively geared properties you generally have to supplement the property with your own income and generally have to wait for the property price to increase so you build up equity in the property. This then allows you to refinance the additional equity so you can use it as deposits to buy other properties or to supplement your income. The problem is if you go through a period of low, stagnate or negative growth, you may have to wait quite a few years for your equity to increase substantially. With positively geared properties, you are getting a net income from the property every week so using none of your other income to supplement the property. You can thus afford to buy more properties sooner. And even if the properties go through a period of low, stagnate or negative growth you are still getting extra income each week. Over the long term these properties will also go up and you will have the benefit of both passive income and capital gains. I also agree with user14469 regarding doing at least 6 months of research in the area/s you are looking to buy. Visit open homes, attend auctions, talk to real estate agents and get to know the area. This kind of research will beat any information you get from websites, books and magazines. You will find that when a property comes onto the market you will know what it is worth and how much you can offer below asking price. Another thing to consider is when to buy. Most people are buying now in Australia because of the record low interest rates (below 5%). This is causing higher demand in the property markets and prices to rise steadily. Many people who buy during this period will be able to afford the property when interest rates are at 5%, but as the housing market and the economy heat up and interest rates start rising, they find it hard to afford the property when interest rate rise to 7%, 8% or higher. I personally prefer to buy when interest rates are on the rise and when they are near their highs. During this time no one wants to touch property with a six foot pole, but all the owners who bought when interest rates where much lower are finding it hard to keep making repayments so they put their properties on the market. There ends up being low demand and increased supply, causing prices to fall. It is very easy to find bargains and negotiate lower prices during this period. Because interest rates will be near or at their highs, the economy will be starting to slow down, so it will not be long before interest rates start dropping again. If you can afford to buy a property at 8% you will definitely be able to afford it at 6% or lower. Plus you would have bought at or near the lows of the price cycle, just before prices once again start increasing as interest rates drop. Read and learn as much as possible from others, but in the end make up your own mind on the type of properties and areas you prefer. Major things to consider: If you're expecting to look at the property market: it might prove to be sensible to start doing it now, since the market is just recovering, and (IMHO warning -I'm not a professional investor, just a random guy on the internet) prices still hasn't caught up with value fundamentals.  check out cash ISA's for a 24-36 month timeframe; most do a reasonable 3-4% AER, with the current inflation rate being around 4%, this will, at the very least, make sure your money doesn't loose it's purchasing power. Finally, a word of caution: SIPPs have a rather rubbish AER rates. This, by itself, wouldn't be much of a problem on a 30-40 years timeframe, but keep the (current, and historically strictly monotonically increasing) 4% inflation rate in mind: this implies the purchasing power of any money tied in these vehicles will  loose it's purchasing power, in a compounding manner. Hope this helps, let me know if you have any questions. I don't know enough about taxes and real-state in the Netherlands to be super helpful in determining whether or not a rental property is a good investment. One thing for certain is that there's some risk in spending everything on a rental property. It's wise to have some buffer, an emergency fund of 3-6 months expenses. If things got dire, you'd still need to live somewhere until your tenant was gone, and you'd want to be able to handle any major repairs that crop up. So, even if it is a good idea to buy a rental property, you should probably wait until doing so doesn't leave you without a healthy buffer. As for owning a rental, you described a scenario where you'd get 6% income on your investment each year if there were zero expenses associated with owning the property. Are there property taxes? Is there a monthly cost to maintain the building the apartment is in? Are rental incomes taxed more heavily than other investment income? Just be aware of the full financial picture before deciding if it's a worthwhile investment. There is no generic formula as such, but you can work it out using all known incomes and expenses and by making some educated assuption. You should generaly know your buying costs, which include the purchase price, legal fees, taxes (in Australia we have Stamp Duty, which is a large state based tax when you purchase a property). Other things to consider include estimates for any repairs and/or renovations. Also, you should look at the long term growth in your area and use this as an estimate of your potential growth over the period you wish to hold the property, and estimate the agent fees if you were to sell, and the depreciation on the building. These things, including the agent fees when selling and building depreciation, will all be added or deducted to your cost base to determine the amount of capital gain when and if you sell the property. You then need to multiply this gain by the capital gains tax rate to determine the capital gains tax you may have to pay. From all the items above you will be able to estimate the net capital gain (after all taxes) you could expect to make on the property over the period you are looking to hold it for. In regards to holding and renting the property, things you will need to consider include the rent, the long term growth of rent in your area, and all the expenses including, loan fees and interest, insurance, rates, land tax, and an estimate of the annual maintenance cost per year. Also, you would need to consider any depreciation deductions you can claim. Other things you will need to consider, is the change in these values as time goes by, and provide an estimate for these in your calculations. Any increase in the value of land will increase the amount of rates and the land tax you pay, and generally your insurance and maintenance costs will increase with time. However, your interest and mortgage repayments will reduce over time. Will your rent increases cover your increases in the expenses. From all the items above you should be able to work out an estimate of your net rental gain or loss for each year. Again do this for the number of years you are looking to hold the property for and then sum up the total to give a net profit or loss. If there is a net loss from the income, then you need to consider if the net capital gain will cover these losses and still give you a reasonable return over the period you will own the property. Below is a sample calculation showing most of the variables I have discussed. That is a decision you need to make, but some of the pros and cons you could consider to help your decision making include: Pros: If bought at the right time in the property cycle and in a good growth area, it can help you grow your net worth much quicker than having money in the bank earning near zero interest. You would be replacing rent payments with mortgage payments and if your mortage payments are less than your current rent you will have additional money to pay for any expenses on the property and have a similar cashflow as you do now. You will be able to deduct your interest payments on the mortgage against your income if you are in the USA, thus reducing the tax you pay. You will have the security of your own house and not have to worry about moving if the landlord wants you out after your lease expires. Cons: If bought in a bad area and at the top of the property cycle you may never make any capital gains on the property and in fact may lose money on it long term. If the mortgage payments are more than your current rent you may be paying more especially at the start of your mortgage. If you buy a house you are generally stuck in one spot, it will be harder to move to different areas or states as it can cost a lot of money and time to sell and buy elsewhere, if renting you can generally just give notice and find a new place to rent. Property maintenance costs and taxes could be a drain on your finances, especially if the mortgage repayments are more than your current rent. If your mortgage payments and property expenses are way more than your current rent, it may reduce what you could be investing in other areas to help increase your net worth. Anybody that offers a bigger return than a deposit claiming 100% safe is a fraud.  There is always a risk: Yes, you can gain 30% in a year, but nobody can guarantee that you'll repeat that gain the next. My own experience (and I do take risks), one year I go up, the next year I go down... When buying investment properties there are different levels of passive investment involved.  At one end you have those that will buy an investment property and give it to a real estate agent to manage and don't want to think of it again (apart from watching the rent come in every week). At the other end there are those that will do everything themselves including knocking on the door to collect the rent. Where is the best place to be - well somewhere in the middle. The most successful property investors treat their investment properties like a business. They handle the overall management of the properties and then have a team taking care of the day-to-day nitty gritty of the properties. Regarding the brand new or 5 to 10 year old property, you are going to pay a premium for the brand new. A property that is 5 years old will be like new but without the premium. I once bought a unit which was 2 to 3 years old for less than the original buyer bought it at brand new. Also you will still get the majority of the depreciation benefits on a 5 year old property. You also should not expect too much maintenance on a 5 to 10 year old property. Another option you may want to look at is Defence Housing. They are managed by the Department of Defence and you can be guaranteed rent for 10 years or more, whether they have a tenant in the property or not. They also carry out all the maintenance on the property and restore it to original condition once their contract is over. The pitfall is that you will pay a lot more for the management of these properties (up to 15% or more). Personally, I would not go for a Defence Housing property as I consider the fees too high and would not agree with some of their terms and conditions. However, considering your emphasis on a passive investment, this may be an option for you. I have done something similar to this myself.  What you are suggesting is a sound theory and it works.  The issues are (which is why it's the reason not everyone does it) : The initial cost is great, many people in their 20s or 30s cannot afford their own home, let alone buy second properties.  The time to build up a portfolio is very long term and is best for a pension investment.  it's often not best for diversification - you've heard not putting all your eggs in one basket? With property deposits, you need to put a lot of eggs in to make it work and this can leave you vulnerable. there can be lots of work involved. Renovating is a huge pain and cost and you've already mentioned tennants not paying!  unlike a bank account or bonds/shares etc.  You cannot get to your savings/investments quickly if you need to (or find an opportunity)  But after considering these and deciding the plunge is worth it, I would say go for it, be a good landlord, with good quality property and you'll have a great nest egg.  If you try just one and see how it goes, with population increase, in a safe (respectable) location, the value of the investment should continue to rise (which it doesn't in a bank) and you can expect a 5%+ rental return (very hard to find in cash account!)  Hope it goes well! In no particular order - to help you on deciding whether to invest or not: Building Wealth One House at a Time Buy & Rent Foreclosures: 3 Million Net Worth, 22,000 Net Per Month, In 7 Years...You can too!  Landlording on Auto-Pilot: A Simple, No-Brainer System for Higher Profits and Fewer Headaches and for when/if you actually decide to start: Investing in Real Estate I've read all the books above and they all have a little bit of information here and there to take out - although they have some redudency it is the good type you need to learn/know anyway. Hope this helps. I'm pretty sure you are don't actually plan to put £120,000 into a zero interest account, because when you take inflation into account, in 20 years, then £120,000 won't be worth anywhere near that amount.  For its value to grow you need the interest rate to exceed the rate of inflation and so paying 20% (or even 40%) tax on the interest can make the difference between whether being richer and getting poorer. I wouldn't go into a stock market related investment if you plan on buying a house in 4-5 years, you really need to tie money up in stocks for 10 years plus to be confident of a good return.  Of course, you might do well in stocks over 4-5 years but historically it's unlikely. I'd look for a safe place to save some money for the deposit, the more deposit you can get the better as this will lower your loan to valuation (LTV) and therefore you may find you get a better interest rate for your mortgage. Regards the pension, are you paying the maximum you can into the company scheme?  If not then top that up as much as you can, company schemes tend to be good as they have low charges, but check the documentation about that and make sure that is the case. Failing that stakeholder pension schemes can also have very low charges, have a look at what's available.