The 5 pillars to successful property investing!
To invest in property and set yourself up for success I believe that there are 5 main pillars that you need to implement to be successful and build wealth. So many people are looking at short cuts, or get their emotions involved in the process of purchasing investment properties.
You need to remember that building a property portfolio isn’t easy, it involves patience, discipline, sacrifice, strong cash management skills, having a clear strategy and treating it like a business, not acting on emotion. The 5 pillars I discuss today will help educate you, you will be able to focus on improving each of these pillars and setting yourself up for the highest chance of success. Let’s get into it and look at the 5 pillars.
If you look at any successful person, whether it be in business, a professional athlete or someone who is extremely skilled in a certain area, they have a mindset that is extremely strong. This goes the same for investing and building wealth. You must be focused, disciplined, determined, hardworking, patient, obsessed and understand that the small daily habits that you are making are contributing to your overall goal. You must get obsessed with the daily habits and make sure you complete these, no questions asked, no excuses.
Throughout this journey you are going to have friends, family and other people in your life that are going to be negative and tell you that what you are doing isn’t the right thing or try and bring you down for one reason or another. This could be out of fear, jealousy or simply a lack of knowledge and understanding. You need to really be cognitive of who you listen to, if you listen to the wrong people this can stop you from reaching your goals, if you listen to the right people this can help empower you and help you grow and achieve your goals sooner.
Remember that these are your goals, and this may mean that your friends and family won’t fully understand them, don’t listen to them, and stay true to yourself and what you want. Why take advice or insights from a family member or friend that has never invested in property. This is no disrespect to them at all, but you simply can’t take advice from someone who has no experience or education on property investing.
When it comes to investing, I want to listen to people who have laid down the foundation and done it successfully themselves. I want to listen to people who have been doing it longer than I have and have built more wealth than me. Why? Because I’m going to educate myself and gain information from their experiences and they are going to understand why I have these goals. Leveraging on other’s skills, experiences, and mistakes to help you get towards your goals sooner. This leads us onto our next pillar, leverage.
We must understand that we can’t know everything and be the absolute best at everything. This may mean that we need to call on other people’s skills, knowledge, and experiences to help us on our journey. This will be in the form of mentors and building a strong team around us. We refer to this as our A Team.
We want to have mentors in our life, whether that be life mentors or mentors specific to business or property investment. You want to actively seek out people who align with you, your goals, and your values. This will help you to gain the knowledge, skills, experiences, and confidence from speaking with them and being in their presence. This will allow you to always level up and not remain stagnate. No matter what level you are at you can always learn something new and always grow.
We also want to build a strong team of advisors around us. The team of advisors that we refer to as our A Team includes an Accountant, a Property Manager, a Solicitor, a Mortgage Broker, a Pest and Building Inspector and a Quantity Surveyor. This allows us to manage the portfolio better, giving us more time back in our lives, it protects us and helps us complete our due diligence before securing an investment, it allows us to be structured in the most effective way for our circumstances to leverage into the next property.
There is one more important factor to leverage. That is leveraging other people’s money (OPM). This is key to being able to build wealth. You need to get comfortable with debt, I don’t mean personal debt and credit cards. I’m talking about good debt, debt that you obtain to purchase assets that are going to provide you with income and increase in value over time. Therefore, if you had $100,000 instead of a 10% return on the $100,000 which would be $10,000. You could leverage money from the banks and buy an asset of $400,000 with a 10% return which is then $40,000. You have now been able to generate $30,000 more by leveraging other people’s money. The percentage on your return is the same however because you have leveraged other people’s money you have been able to purchase a larger asset base. Leveraging other people money is extremely powerful and will get you to your long-term goals sooner.
Treat it like a business with zero emotion
If you want to build a large portfolio, one of the pillars that you are going to need to implement to assist with becoming successful with achieving your goals is treating it as a business. This means purchasing property interstate and around the country not just buying a couple of kilometers from home so you can keep an eye on it and make sure that it doesn’t run away. This is the exact reason it is important you have a high-quality property manager in place, you pay them to keep the property in order and you can spend more time living your life and focusing on the things you would like to be doing. We entrust high quality Property Managers to manage our properties and we have even negotiated a discount on what we pay them which we pass on to our clients. Leveraging a Buyer’s Agent is worth it’s weight in gold.
Treating it like a business also means to ensure you don’t buy somewhere close by so that you can take advantage and save money on stamp duty because you are a first home buyer. Saving $15,000 sounds great until you purchase the wrong asset type and in 15-20 years’ time your asset has underperformed by $200,000 or $300,000 because you were too focused on the short-term thinking and saving $15,000 instead of focusing your attention on the market that is going to perform strongly over the long-term. Remember you must think long-term. What is going to perform over the next 15-25 years? Not how can I save myself money on the way in.
When you have selected your market/suburb and you have found a property within that area you need to then remove your emotions. Remember if you are purchasing an investment property, you won’t be living there. If there is a pink door don’t let this be the decision not to purchase the property or if the finishings are not what you would like to see in the house you live in.
It is always a matter of keeping it simple, sticking to the fundamentals and focusing on the numbers. It is all a game of numbers, remember.
We must grasp the fact that we need to have strong cash management skills to build a large portfolio. If you can’t get your head around managing your finances, then you will struggle to build a large amount of wealth. If you can’t manage $10,000 then you will not be able to successfully manage $100,000. This sounds harsh, but this is the truth.
To purchase your first property will always be the most challenging. Unless you have inherited a large sum of money you will need to have your cash management skills in order and have a cash surplus consistently over time to save up a large enough deposit. You must have the mindset that this may take you multiple years to save up. This means consistent daily habits to ensure you have a cash surplus long term.
Over time you will then be able to use equity to leverage into the next property purchase, if you build up the consistent habit of saving money you will be able to leverage into a new property far sooner, not to mention ensuring that you have cash buffers in place if you lose your job or a large expense comes up within the property.
We must remember that cash is an asset, you can leave it in a term deposit at the bank and receive income via interest. Interest rates are so minimal that cash is not currently a strong asset, however an asset, nonetheless. Remember that cash in the bank will not help you build wealth, especially as inflation over time will devalue the cash you have in your account. We as investors need to use that cash asset as a vehicle to leverage into a stronger asset class. That stronger asset class is property for us property investors.
To build a property portfolio you need to create clear goals, and this involves creating a strategy. This strategy will be the blueprint that you will stick to each time that you purchase a property. Over time you may grow your knowledge and skills and this strategy may change, you may pivot and adapt to the market and how your personal circumstances change. It is crucial to always ensure you purchase a property with a clear strategy. If you don’t, you’ll be one of the statistics where someone has purchased a property and bought in a small regional town, where the property hasn’t performed or increased in value.
Before you even begin looking at individual properties you want to look at cities that are going to be the next high performers and using timing to your advantage. This might mean investing in a city that has not performed well over recent years, don’t get sucked in by recency bias. You might purchase a property and pay for someone else’s profits! Brisbane is the example of this now, it has sat flat for the last 10 years however is really finding it’s rhythm currently and performing well.
You want to focus on capital cities, they have the population growth, infrastructure spending, higher incomes just to name a few. Once you identify the capital city you want to focus down on the suburbs. You want to look at the vacancy rates, average vendor discount, last 12 months growth and last 5- and 10-years growth. What is the median sale price, what is the median rental price and what is the rental yield? What is the average income and industry types of the suburbs? So many factors to analyze and consider, again leveraging a high-quality Buyers Agent can assist with this.
Once you identify the individual suburb you want to invest in, you then want to know that suburb like the suburb you live in. At Taylored Property Wealth we are experts in the areas we invest. You want to leverage off your local property managers as well as complete sales data mapping of the last 12 months to identify the lower pockets and higher pockets within a suburb or area. This way you can identify properties under market value to make money on the way in, in conjunction with the growth that will be achieved in the future.
You then want to identify the property criteria that you want to target. Low set or high set property. Three-bedroom 1 bathroom or four-bedroom 2 bathroom. You want to purchase an existing property, not situated on any main roads, not directly next to any commercial property, major parks or sporting complexes and not directly next to any public housing or in high concentrated areas of public housing. Once the property is then found, you would then complete a cashflow analysis and complete several different reports on the property such as a flood report, noise category report and report on what is under the ground on your block of land. You would receive a rental appraisal and a property inspection checklist as well as analyze comparable sales in the area to understand what the property is truly worth and not pay over fair market value. If it does go over market value, remember that we are not tied emotionally to the property, and we simply move on knowing that another property will become available.
This is how specific your strategy needs to be when purchasing property. Following a strategy in this much depth is going to increase your chances of a higher performing asset and allow you to leverage into the next property sooner.
If you have any questions with the information you have read through, please reach out using the contact form on our website tayloredpropertywealth.com.au or email us at firstname.lastname@example.org.