Recently one of my nephews, who has taken a keen interest in property investment, asked:
What’s the worst advice you’ve ever been given on real estate investing and what’s the best advice you could give me?
I explained that the worst real estate investment advice I was given was that property investment is easy.
This was clearly wrong because most property investors fail!
Look at the facts - 50% of those who get into property investment sell up in the first 5 years and of those who keep their properties, the vast majority never end up owning more than one or two properties.
This means they won’t ever achieve the financial independence they desire.
However, over the years, I found property investment is simple, but not easy. And that’s not a play on words.
It’s simple if you follow a proven formula but it’s really hard to become wealthy in property if you do what everyone else is doing.
You see...attaining wealth doesn’t just happen, it’s the result of a well-executed plan but the fact is most beginning investors don't have a plan.
They just find a property they like and do a little research looking for any evidence they can find that confirms their emotional decision and they buy the property.
Doing it this way they've made two big mistakes.
- They've mistaken searching for a property for researching - they've started the wrong way around. Rather than using data and research first to identify opportunities, they've found a property first.
- They've seen property investment as an event. It's not. It's a process that starts with building a personalised, customised Strategic Property Plan.
When you have a Strategic Property Plan you’re more likely to achieve the financial freedom you desire because it will help you:
- Define your financial goals;
- See whether your goals are realistic, especially for your timeline;
- Measure your progress towards your goals – whether your property portfolio is working for you, or if you’re working for it;
- Find ways to maximise your wealth creation through property;
- Identify risks you hadn’t thought of.
And the real benefit is you’ll be able to grow your wealth through your property portfolio faster and more safely than the average investor.
When I first became involved in property investment I didn’t understand the cyclical nature of the property market – my only experience was a rising property market.
An early mentor taught me to prepare for the lean times by having a cash flow reserve to see me through the downtimes of the property cycle or to handle unforeseen expenses.
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Rather than use my full borrowing capacity and buy the most expensive property I could afford, I learned the concept of setting aside a buffer.
While I initially was concerned that I was not using my full borrowing capacity, having this safety net helped me get through the high-interest rate period of the early 1990s, while many other investors had to sell up their properties.
It’s a lesson I’ve never forgotten and has let me sleep peacefully at night through 5 property cycles.
Tips: Another piece of good advice – treat your property investments like a business.
Over the years I’ve seen a small group of property investors, those who treat their investments like a business, become very, very rich by growing a multi-million dollar investment property portfolio.
They do this by understanding “the system” and getting the right type of finance, setting up the correct ownership and asset protection structures and knowing how to legally use the taxation system to their advantage.
Let's face it; the majority of Australians will always be employees but we all have the ability to become financially free by becoming property investors who treat their investments like a business.
And you can set up your own property investment business while you are still an employee or self-employed.
In fact, that’s what I did and what almost every wealthy property investor I know has done.
They built their wealth by growing their real estate portfolio one property at a time.
While this was going on they lived off the income they earned from their day job.
They started off with one property, then leveraged off its capital growth to invest in another and another until one day they found themselves with a true property investment business.
One that gave them financial freedom and choices in their lives.
So what's the best or worst advice you've been given?
Please leave your comments below.