Is property investing just a gamble or is there a methodology to success?
Many people’s property investment journey starts with the idea that they would like to be financially free. The problem is where does one start and how does one know if what they have purchased is going to make money or is it a dog.
The short answer to this question is that a property can be both, it can potentially make you money or it can lose you money. Well… that is kind of scary! So how does one know the difference?
The difference is the person. Does the person have a solid financial foundation to start with? Examples of people who want to be investors but have little or no solid financial foundation are those who get a tip on the latest fad and act on it with little to no research. These investors have no principles or rules for investing. They impulsively buy high and (in a panic) sell low. They see the share market in the same way as they see a casino craps table. It’s just luck. Throw the dice and hope. When asked how they are doing, they will always state that they are “about even” or “a little bit up”. The truth is that they have lost money.
And on the opposite of the coin, the guy at the barbeque, you know, the one who loves to give advice and rain on people’s parade, is determined that all investments involving more than the most basic research by the investor and/or that promise much more than bank interest rates of return, are beyond them. They are cynical and expert on why investing will not work and they are overwhelmed by cautiousness. They do not like to see people around them being successful as it only highlights how inadequate they are.
The investors that are successful are actively involved in their investment decisions. They have a clearly laid out and written long-term plan that will enable them to reach their financial objectives. These investors ‘set’ the flow of their finances so that they don’t ever have to worry about money. In other words, all their payments are set up to be paid automatically. They know that their mortgage is always paid and they know that their bills are taken care of. They have a savings plan in place and usually a charitable giving plan. They are generally very conservative with well-balanced financial habits. They diligently spend time when it comes to learning about investing and make wise investment decisions. They understand the importance of debt elimination strategies; they live within their means and steadily increase their assets. They don’t seek out get rich quick schemes. They don’t drive flashy cars even though they can probably afford to do so.
When it comes to purchasing an investment property, successful investors have their finance in place prior to purchasing. They know the numbers on the property. They know what the return is and what the outgoings are. They have not brought the house because it looked pretty, it was brought because the numbers made sense. They have researched the neighbourhood they know what the vacancy rates are. They also are aware of the long-term trends in the area and what industries support the local economy. They have done their homework. The methodology they have followed is;
- Foundation – have set a solid foundation in place and live well within their means.
- Acquisition – they have learned to recognise that a good deal is based on the numbers rather than the property itself.
- Possession – have good management in place and apply simple strategies to improve a property’s value and cash flow
- Accumulation – they have learned how to build a great team and understand the impact of lag time and have the right mindset to build a property portfolio.
A successful property investor does not gamble, they apply the above methodology to get great results.