As I mentioned in a recent blog, today I will share Part 2 of a presentation I recently made at a Property Investor Club. These ‘Strategies & Financial Concepts’ are what I used to create a strong million-dollar property portfolio, and it’s what I advise clients in my daily work as a Finance Strategist.
Property investing is just like any other business and should be treated with as much diligence and careful management. Property is an enabler of creating wealth and an enabler of achieving true financial freedom, but only if you play the game right..!!
Here are the ‘Strategies & Financial Concepts’ I use and which I advise on…
- Handwrite your goals: What do you want? What do you dream of? As you’ve heard me say before, if you aim at nothing, you’ll hit it every time! Setting goals is important to achieve financial success. I also find that ‘handwriting’ goals makes it more powerful as the brain has a deeper connection with what I want and increases the chance of making it happen.
- Know your number: How much passive income do you need/want? What does your financial position need to look like to achieve your desired passive income?. Make a list of how much money you need/want every month without having to go to work for it. This is the basis to work out how many properties you need (unencumbered) to provide you with this passive income. That is called ‘financial freedom’.
- Timing: When is the best time to buy property? The best time was yesterday, and the next best time is today… so long as you can afford to and your borrowing power enables you to. I’m not interested in short-term market cycle movements as the time I hold my properties is ‘forever’.
- Lenders Mortgage Insurance: Make friends with LMI and understand that LMI is not a cost, rather it’s an enabler to buy more property sooner and create more wealth faster. Waiting to save the required deposit will cost you in lost opportunity. When building my portfolio, LMI allowed me to accumulate more property more quickly, which today has resulted in significant capital growth.
- Capital growth: There are many theories around, but when you think about it if your property assets achieve zero or little growth, then what’s the point? Sure, cash flow is important to help service your loans, however without capital growth you cannot create financial freedom. Generally speaking you can’t save your way to wealth.
- Compounding growth: The best time to hold your properties is forever. As the world’s richest man Warren Buffet once said, “wealth is the transfer from the impatient to the patient”. So true! Compounding growth is the magic to creating massive wealth, and time is required for compounding growth to work.
- Gearing: Everyone has different tolerance to debt and gearing levels. For me, I like to maintain a maximum gearing of 50% at any one time, however I always maintain an 80% gearing ‘credit limit’ to ensure I have sufficient financial buffers to ride the ups and downs that comes with property investing. Financial buffers also enables you to jump onto opportunities as they come up.
- Cash flow: Cash flow is the life blood of any business, and property investing is no exception. If your business becomes illiquid, then it may force you to dispose of an asset sooner than planned, which means you’ll miss out on capital (and compounding) growth. Managing my cash flow is absolute top priority for me, and it should be for you also.
- Debt is an Asset Class: That’s right, debt was once seen as a liability, and whilst it still sits on the liability side your Balance Sheet, successful property investors view debt as an asset. For me debt is an enabler to buy capital growth assets (such as property) and therefore I view it as an asset. But be careful, not all debt is good. If you’re using debt to fund your lifestyle, then you’re asking for trouble!
- Set financial targets with timeframes: If you don’t know what you’re aiming for then you won’t get there… at least not in a predictable way. Setting financial goals/targets is smart, but you also need to set a timeframe to ensure you remain committed to achieving your targets and to remain on track.
- Number of properties or the value of your portfolio?: How many times do you hear people tell you how many properties they own? For me it’s not about how many properties, but what the value of my portfolio is. The truth is that property management can be painful at times. The more tenants you have to deal with the more hassles you may experience. A cheap property doesn’t mean it’s an investment grade property!
- Waiting is like Kryptonite: The only thing that could destroy Superman was kryptonite, and when it comes to investing and creating wealth, waiting is like kryptonite and it will significantly impact (if not destroy) your goal to achieve true financial freedom.
- Are you an Investor or are you in business?: When buying a property you need to decide whether you are investing or buying the property to transact. Investing is when you hold a property, and it’s what creates long-term value. Renovating, developments, and flipping, are all attributes of running a business. I never confuse the two concepts, even when it gets tempting to grab a quick profit and run. Missing out on compounding growth will significantly reduce your wealth potential over time.
- Wealth is a measure of your holdings: What your Balance Sheet holds right now is what your financial worth is. If you don’t hold your property assets, then how can you be worth anything? (financially speaking). Food for thought!
- Monitor performance and take action as required: You should regularly review your properties to ensure they’re punching above their weight! Be honest with yourself and realise that “waiting” to sell a low performing property will cost you in the long run. If it’s the wrong property and it’s not achieving a satisfactory level of capital growth, then cut it loose and get onto a better quality investment property. Time will cost you as will waiting for the right time!
The most common issue I see in society is people not taking action. You’ve heard me say before… “It’s the start that stops most people from achieving the financial success they want and that they deserve”.
The above strategies and financial concepts will hopefully help you with your property investing journey. Remember this… It’s not what you know that matters, it’s what action you take with what you know that counts!