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Two ways to invest in properties

I would like to remind you that there are two ways to invest in properties, and see if it is time to reflect on a more suitable way for you to move forward.

The first way to invest in properties is definitely the most common. Investors take the “shot-gun” approach. They simply invest their money in a property or properties they think are good, with no clear goals or plans to follow.  In other words, they invest whenever they feel like it or worse, whenever they get around to do it, with not much planning or risk management in place. The upside of this approach is there is no pressure for the investors, there is little discipline required to follow, and no real measurement of success or failure. But the downside of this approach is that we could end up anywhere financially, and past experience shows most financial destinations are not desirable.

The second way to invest in properties is a lot less common. Investors take on a financial planning approach to invest in properties. They set goals and follow plans. In other words, they give a higher priority to their investing even when they don’t feel like it, because they do so with proper planning and risk management. The downside of this approach is that it requires investors to be disciplined. It forces them to put measurement in on themselves to see if they are moving towards their financial objectives. But the upside of this approach is that the investor can consciously keep adjusting their plan to ensure that their desirable goals will be reached somehow.

Looking at these two approaches of investing, it is not hard to see that the second approach makes you take on more pain first in exchange for a more desirable outcome later, whereas the first approach has less pain now but potentially much greater pain later.

The tricky part of all this, is that while we may be aware enough to take on the second approach, in reality nothing in investing ever happens according to a plan. So investors often discount the value of setting a goal and following a plan once they start seeing discrepancies between what is happening in the real world and what is supposed to be happening, according to the plan. Sometimes they will automatically go back to the first approach of working without a plan. 

This would be similar to a basketball player aiming to get the ball in the basket but finding he misses a couple of shots, then deciding that he just couldn’t be bothered aiming anymore because it didn’t always “work”. You can imagine how much worse his results will become now. What he should really be doing is to keep aiming before he shoots over and over again, until his accuracy at getting the ball in the basket improves.

Similar to a basketball player, a property investor should continually aim at their financial targets each time before they invest, regardless of whether their last investment missed the target. In our system, we call this “aiming exercise” a regular financial review. This is a service from our financial planning division to help our property investor clients to reposition their financial resources within current market conditions and their own personal risk management profiles, so that our clients can keep moving towards their financial objectives quicker. Even if you don’t use external consultants or financial planners, you should probably do this exercise at least once a year yourself.

Until next month, happy investing.

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Investors Direct Financial Group

Investors Direct Financial Group (IDFG) was established in 2001.
Our mission is to help our clients achieve and maintain their financial freedom.

Members of the IDFG Group include:
  • Nanmon Financial Services Pty Ltd, trading as Investors Direct Financial Group (ABN: 52 097 697 820 ; ACL: 402950)
  • ID Property Advisory Pty Ltd (ABN: 69 141 716 412 ; Real Estate Licence: 071792L)
  • Investors Direct Financial Planning Pty Ltd(ABN: 50 141 139 228 ; AFSL: 385827)
  • Investors Direct Property Management Pty Ltd (ABN: 59 153 184 859 ; Real Estate Licence:073458L)
  • 8 Star Homes Pty Ltd (ABN: 83 135 066 876)
  • Investors Direct Financial Services Pty Ltd ACN 608 410 591
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