I had the following article emailed to me yesterday. It essentially offers a contrary augment to my “gut feel” strategy for property investment purchase. However it does give you a good road map for dealing with the mechanics of being a successful property investor. The firm responsible for the news article offer pay for service help for new and established property investors.
“To be a successful property investor there are three different types of systems you need to master.
These systems are:
1. Property systems
2. Money systems – your capital plan,
cash-flow plan and finance plan
3. People systems – your team and
self management
When thinking about your ‘people systems’ you must consider team management and self management.
Team management
Investors in many other types of asset classes (like shares, managed funds, indirect property, deposits, super, etc) play a relatively passive role in the investment decision-making process.
The majority of these type of investors allow their advisors (fund managers, etc) to take the driver’s seat and make their decisions for them. However, being a direct property investor, you’ve chosen a different type of niche to focus on. This niche is usually too deep for general advice and, given the nature of property, you need to be more ‘proactive’ rather than rely on others to make investment decisions for you. You’re fully responsible – not a fund manager or a financial planner – for your success or failure.
This is where your team comes into play. If you’re like a majority of people who conduct their property business on a ‘part-time’ or ‘casual’ basis, then it’s critical that you leverage your time and capacity. The best way to do this is to focus a good proportion of your time carefully selecting and managing your team of advisors. To be successful, you need to assemble and manage the best team you possibly can.
Who do you need on your team?
There are a number of key players who can help you:
? A mortgage broker – to help you plan your debt structure to maximise your potential as a property investor and manage your financing risk.
? A lawyer – to help you with setting up the correct structures to invest in and conveyancing.
? An accountant – to advise you on asset protection and taxation.
? A buyers agent/s (property sourcer/s) – to assist you with your property selection and negotiations,
particularly if you’re time poor and want to invest in different markets that are interstate.
? A property manager – to assist you to find tenants and manage your properties.
? A builder – to help with more active property strategies like renovations and developments.
? An architect or draftsman – to assist with renovations or developments.
? A town planner – to help you get your application through the local council if you want to get into
renovations or developments.
? An insurance broker – to assist you with public liability insurance, landlord insurance, home and
contents insurance.
? A mentor – you can learn by reading books and magazines, watching DVDs and attending seminars, but finding an experienced investor who has already achieved what you want to and is willing to give you some of their time and knowledge is a surefire way to take your investing to the next level. Never underestimate the importance of experience If you’re a beginner investor, it may look daunting to find good advisors in all these areas but, in reality, finding a good advisor can usually lead you to other good advisors. Similarly, one bad advisor can also lead you to other bad advisors. It’s been said that you can tell a lot about a person by the friends they keep, and this is applicable to advisors. You can also tell a lot about an advisor by their client base. In general, you should seek advice from advisors who have been specifically servicing property investors for a period of time. Dealing with experienced professionals means you won’t become a guinea pig. It will be more cost-effective for you because you aren’t paying them to learn. Only go to an advisor with a specific task, not a general idea, otherwise you’ll be paying them to learn and coordinate with other advisors. It’s critical that an advisor has performed a particular activity both recently and successfully. If they haven’t, you should reconsider your options or ask for a referral to someone with more recent experience. For example, a mortgage broker focusing on property investors will give higher priority to higher leverage than lower cost, whereas a mortgage broker focusing on homebuyers will give higher priority to lower cost than
higher leverage. It’s very hard to switch the two types of thinking as it’s habitual for most mortgage brokers. Instead of hoping that they’ll change to your liking, it’s much easier to go for the right one in the first place. Take responsibility for your team We’ve all heard of the expressions ‘surround yourself with people who are smarter than you’ and ‘nobody cares about your business more than you do’.
Together, what these mean is that there isn’t much point surrounding yourself with smarter people who don’t care much about your business. It’s your job to make sure these smarter people are accountable for the outcome you want to achieve. This is probably the main reason why the best advisors still have unsuccessful clients, because these clients either didn’t know what they wanted or simply left everything to the advisors to decide what’s good for them. When you don’t know what you want, anything will do; when you don’t care, nobody else does either. Many people use the notion of ‘surrounding yourself with people who are smarter than you’ as their excuse for ignorance in certain areas. You need to think of all your advisors as contractors to your business, ie you’re the boss in your own property business Invest. The truth is that the more you know, the better the results you can achieve with your advisors. It’s critically important for you as a property investor to understand that you’re ultimately responsible for the success or failure of your own property investment business. You’re responsible for selecting your team members and are responsible for managing their performance in your property investment business. There are many tasks you can delegate to your team members, but not this task – ever! Treat all your advisors as contractors to your business, i.e., you’re the boss in your own property business. They may know more than you do in certain areas, but you’re still in charge and need to hold them accountable for their performance and contribution to the success of your business. We teach others how to treat us, and we get what we can put up with generally. Therefore, it’s important that you take some time to define and then clearly communicate to them your boundaries and expectations upfront. You need to make them very aware that you have high expectations for your financial results. Remember, your primary goal isn’t necessarily their primary goal. The more you communicate openly with them about what you want to achieve, and in what timeframe, the better. There’s no need to make one-sided assumptions or take things personally. You’re in the property investment business to make money, not friends.
Self management
Know your strengths and
weaknesses: play to your strengths
We touched on the different types of property investors in the article on property systems. We can roughly put them into three categories:
? Passive property investors
? Normal property investors
? Active property investors
Passive property investors
‘Passive’ here means the investor spends very little time looking for investment properties or finding out about property investment. They rely on others to tell them what to do without having enough knowledge themselves or doing sufficient due diligence. But investment is an ‘effort for reward’ kind of business. It’s important for you to recognise what type of investor you are. Recognising this will drive how you conduct your business, enable you to understand what type of system you’ll need to build, and dictate what team members you’ll need and how closely you’ll need to work with them. You’ll also need to explore and understand your own personal strengths and weaknesses. Business guru Peter Drucker has observed that “most people think they know what they’re good at. They’re usually wrong… and yet, a person can perform only from strength”. The world of business has developed countless competency models over the years, most of which are oriented towards describing what’s wrong with you and how to improve.
Recent behavioural science research indicates that understanding and having the opportunity to develop your strengths is much more important for your success compared to improving on your perceived weaknesses. The same is true for investing. What are your strengths and talents? What
property strategies can you pursue that will complement these strengths? Do you need to find partners with complementary strengths to help you achieve your goals? If you can become aware of what type of investor you are and what your Dealing with experienced professionals means you won’t become a guinea pig.
Because investors in this category put in very little effort, they normally could expect lower returns for their investment, at least initially.
Normal property investors
‘Normal’ here means the investor puts in some effort to get the basic understanding of property selection and spends some money on advice or sourcing services. These investors can usually expect
higher returns for their investment compared to passive investors because they do work on it a bit. Investors in this category will buy properties with reasonable due diligence and get advice on structuring; many will pay for professional help to purchase properties.
Active property investors‘Active’ here means DIY.
Investors in this category usually want to know just about everything they need to know about property – selection, tax, legal and finance. Many of them not only select the properties themselves, but tend to pursue more active property strategies like renovation and development. Investors in this category would usually expect a higher return on their investment due to the fact that they’ve
put in so much more effort – as long as they don’t spend too much time finding out how and what to do instead of actually doing it. strengths are, you’ll be ahead of 95% of the investors out there. If you can align both of these and incorporate them into your system, you’ll multiply your profits time and time again.
Leave emotion out of the equation. Emotion is useful to help us commit to planning something new, but when it comes to the execution of the plan, it’s better to leave emotion out. For example, you may be angry that you’re overweight and decide to go to the gym for a year, so the emotion
or anger gets you started. If your attendance is based on how you feel and what you think every morning when you get out of bed, it’s very unlikely that you’ll go consistently. If your day-today
feelings dictate your performance, your results won’t be as predictable. It would be almost impossible to stick to the plan if you’re relying on how you feel in the morning to decide whether you should go to the gym.
Creating wealth through property tends to be a very emotional subject. When you’re spending many hundreds of thousands of dollars, using your own hard-earned savings and a mortgage, it’s hard not to be emotional. However, our emotions aren’t very dependable, so it’s wise to take the emotion out of your execution process so that you can give your plan a fair go. This is one of the key reasons why we
focus so much on the importance of building systems. Remember that systems take the emotion out of what you do. Create a regulated action plan A regulated action plan is the sum parts of your property system and money system (capital, cash-flow and finance plan). Having a regulated action plan is a
much more systematic and reliable way of achieving your goals than following your feelings. Consider setting up a regular time for a review by yourself or with key members of your team. The more active you are, the more regular you should review your situation. The larger the portfolio you have, the
more regularly you should review. For a more passive investor, you should have at least an annual review for every three properties you have. For example, if you have six properties, you should have a review every six months. For a more active investor, you should have at least an annual review for every two properties you have. For example, if you have four properties, you should have a review every six months. Very often, we rely too much on how we feel or what we think when we come
to an investment decision. A regulated action plan can take out the feeling and thinking on the day, and often deliver a more predictable result. Sometimes I come across clients that I haven’t seen for a few years. They often tell me they wish they’d invested a bit more a few years ago. When I ask them why they didn’t do so, their answer is usually not because they weren’t in a financial position to invest;
it’s usually because: “I had other stuff going on in my life at the time and I didn’t feel like doing nything else”. We all have stuff going on in our lives most of the time; if we have to wait till we feel better to do certain things, we may have to wait for a long time to do them. Unfortunately, property
investors can’t afford to wait, as time is where the money is.
While we know emotion can motivate us into doing certain activities, it can also stop us. This notion that ‘feelings follow behaviour’ also has huge implications for people who have great difficulty starting something new, such as:
? Buying the first investment property
? Carrying out the first renovation
? Conducting the first development
project
? Taking on more than $1m worth of
mortgages the first time
Let me apply ‘feelings follow
behaviour’ to this situation:
? Behaviour = thinking about
something and doing nothing
? Feelings = fear of the unknown
See that our feeling fear about
the unknown actually follows the
behaviour ‘thinking about them and
doing nothing’?
So, if we want to feel better, all we need to do is change our outlook and our behaviour to be opposite of what we habitually do. In this case, that’s ‘stop thinking about it and do something’.
That’s why you hear the saying ‘too much thinking can do your head in’. We aren’t what we think; we are what we do. We often need to take actions before we even understand why. That is, to
act first. The understanding will follow. Taking action is one of the fastest and most effective ways to get out of our own thinking and emotional traps. While you’re taking action, you’re less likely to worry and are more likely to be intuitive. Having an action plan to follow is the only way to ensure that we can take the planned actions beyond all reasons and excuses.
Finally, like anything else, the investment journey is a homecoming journey. The longer you stay on this
journey, the more you’ll realise that you’re the most powerful person in your life – and never let any one make you believe otherwise.”
This article was written by Bill Zheng,
founder and CEO of Investors Direct
(with contributions from Tim Riley).
Investors Direct provides financial solutions
exclusively for property investors and
understands that your
mortgage is an asset, not
a liability.
To subscribe to
their free monthly
e-newsletter on
investment property
finance, visit www.
investorsdirect.com.au
The need for a competent mortgage broker cannot be overstated as your finance structure will be crucial to your success. Your mortgage interest rate and terms and conditions have a bearing on your ability to grow your portfolio so a mortgage broker who has experience dealing with investment property owners is essential. A good mortgage broker will also have access to the various mortgage, home loan calculators can be very useful for the what if scenarios, but you must get some mortgage statement checking software as well. Run it on your home pc, check your mortgage home loan statements regularly, especially if there has been a change of interest rate or mortgage security structure.
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