Most people will buy their first investment property without much difficulty.
The hard part comes when they want to buy the next one.
Where should you buy? Where does the deposit come from? On the face of it these are valid questions that need answering before you can think about getting another one.
However, these questions actually come much later in the process than you would imagine.
In theory, purchasing multiple properties should accelerate as the growth factor increases by the number of properties. One property growing at 10% is not as good as two or three is it?
The quicker you buy properties the faster you can access equity, all things being equal.
The truth is that most people will leave their first investment property to increase in value on its own with little attention paid to being proactive. You know how it goes. You buy a property, get a tenant and after a few years it has grown enough to let you access the equity so you can buy another one. Then you simply repeat the process.
Sounds easy and it was. The key word is was.
The consideration for buying a second investment property usually centres around equity and finance. How long will it take to get enough equity to buy something and can I get the money? Time is important here. The longer it takes to gather the money together the more expensive the property market becomes. Some of the more common statements I hear from people include an inability to access finance and the fact that the property hasn’t grown in value to produce equity.
These days we take it for granted that keeping fit is an essential part of life. Yet have investors become FITTER to invest by investing in themselves?
The simple fact of the matter is that Set and Forget property investing is Dead.
These days you need more than a passive strategy to build wealth. The reason we say BUILD wealth is because it takes effort to do it. A builder doesn’t have the material delivered to a job site then sit around waiting for the home to assemble itself. He has to Build it. For an investor, it’s not so much the physical effort but, thought, planning and lastly, action.
Take some time to think about this.
Double digit growth was an expectation years ago. Looking into the future this is not going to be the case.
When will you get another one? Have you thought about how you are going to do that? You know the answer but you are probably reluctant to admit it…….don’t worry, I’ll tell you later on 🙂
The fact is, most people will rely on the property growing over time to get enough equity. What will you do if the property doesn’t perform as well as you want? How long will you wait?
It’s the waiting that most investors find frustrating. While we are waiting we are putting our trust in the market to deliver the right results for us. The market controls our wealth. I don’t know about you but I want to have some say in what happens to my money.
If you were relying solely on market growth to build a property portfolio perhaps you should reconsider your strategy.
The key to your financial future is what you do after you settle a purchase and before you buy the next. The action you take between purchases is the critical thing.
What should I be doing?
Most people don’t see the connection between purchases. Each one relies on the planning, the expectation and the actions that you undertake immediately AFTER settlement. The reason I say after settlement and not after you buy is because only after settlement are you in a position to know what the costs are for this property. Only then can you see the costs of ownership. Only then can you make decisions. Knowing where you stand financially allows you to make decisions and take control
How can I take control?
Each property must be connected from the completed stage and the purchase phase by a system that holds you accountable for the result. What’s missing is a link between buying the first one and buying the second one. Planning for the second forms a key component and it requires intention and commitment. Being active is a requirement, not an option, for today’s investor.
Some people misunderstand this critical period and buy a property that settles one or two years in the future, giving them a set timeframe to get everything in order. Can you see the dangers in that strategy? What happens if the Banks don’t want to lend the money for that type of property anymore? What if they just reduce the LVR so you need more deposit? Everything depends on being able to borrow in the future with no certainty that it will happen.
Please understand that I am NOT advocating you buy a property now that settles in the future. I’m talking about putting in place a set of actions/controls that provide a means by which you can be confident of improving your position.
This is the key component that is missed by most investors. Remember, the opportunities you are presented with are a direct result of your readiness to accept them.
Controlled outcome or a Market driven outcome?
There are two things that can happen after the first property is in place.
One, you can relax and wait for the property to go up
Two, you can take control and put in place steps to ensure you get a result and improve yourself.
The first option provides what I call a Market Driven outcome. Everything depends on the market performance. Essentially you need the property market to perform in a way that benefits you to make any headway in building wealth. You have no say in the result you get and you become a passenger on the journey.
In the second option a set of controls is put in place that will link the first property with your intention of buying another one. This set of controls covers all the critical key areas that affect your ability to efficiently purchase property. They can be used over and over again to create a portfolio of investment properties. You could call it your Investment Formula.
These options face every investor from the experienced to the unwary. The obstacles are not immediately apparent simply because it’s easy to buy a property.
Maximum Money Control
Reducing expenses is part of the new age of investing. Reducing debt helps to build equity.
Having control gives you confidence. Just like holding the steering wheel while you are driving lets you control where you go, taking control of your Financial Position allows you to build wealth.
Sadly, a number of investors only hope to be successful. Hope doesn’t provide results. Essentially, you have the option to hope for a win or decide to control your actions.
If we looked at it rationally, an equation could look like this: Hope – Control = Blame
Blame is a negative emotion that serves no worthwhile purpose. If the property doesn’t deliver the result hoped for then the blame is far reaching. It’s the Markets fault, the Banks fault, the Brokers fault, the Real Estate agents fault, the property manager’s fault.
We could look at it another way though. Let’s build in some control into our position.
The equation could look like this: Hope + control = less risk
There is no doubt that systems provide control. For example, one method of controlling traffic is to put traffic lights at intersections. Another is to put rules in place to make sure each driver is confident that the other driver will do the same thing, such as the use of speed limits, Stop and Give Way signs and the painted lines down the middle of the road.
Let’s look at what type of controls could be put in place by a serious investor.
A set of Controls
Money Management – Out of all the areas we consider, this is the biggest one to improve yourself and it’s also the #1 strategy in the medium term to grow your portfolio. The control of your money is critical. What plans do you have for the rent? What will you do to keep your investment property money separate from your personal funds. What protocols do you have in place to make sure you continue to save? How do you know if you are saving? Is there a budget? Where are surplus funds directed?
Finance – can I borrow money? Does my employment and income meet bank criteria? Am I going to change jobs? What do I look like to a Bank?
Property Review – how is my portfolio performing? Is it time to turn over the worst performing property and replace it with something else? What is the market doing?
Selection strategy based on Value Criteria – What criteria can I use to find value areas? How will I know if Banks will favour these areas?
Tactical Asset Allocation – what am I doing to maximise my surplus funds? What can I do to create safety in my investment assets?