By Konrad Bobiak
Here is the one of the best pieces of advice that I was given years ago by a very successful property investor; ‘Treat your property investing like a business’.
If you treat your property investing like a hobby, you can expect to earn a hobby income. If you treat your investing like a serious business, then you can expect to make a fortune.
Ultimately, the choice will come down to you and the consequences of the decisions, and indecisions, that you will make along the way.
One of the main reasons that the vast majority of property investors, (and here I am mainly referring to the property investors who have only one investment property, which is 72.8% of the entire landlord pool in Australia), fail to achieve significant wealth through property investing is that they simply fail to treat their property investing like a business.
Like any successful business owner, property investors who wish to profit need to start managing their real estate assets in a manner that will maximise their chances of succeeding in the medium and long term. Failure to do so will leave those ‘investors’ feeling frustrated and disappointed.
Here are 7 key characteristics that are common to property investors who approach their investing with a business mindset.
- Developing systems: it’s no secret that the reason behind McDonald’s global success is in its ‘Systems’. Your ability to clearly develop, implement, and monitor a ‘systemised’ approach to property investing, will ultimately determine your long term success. Whether it’s renovations, sub-divisions, strata titling, or buy and hold, it’s the system or strategy that will create lasting financial rewards in your life, not striking it lucky with a one off purchase or property transaction.
- Maximise your ROI: there are two main ways that you make a return on investment (ROI) when it comes to property investing. One is in the capital appreciation of the value of the property, and the other, the rental income of the property. Your objective with every single property acquisition should be to maximise both. This can be achieved by simple cosmetic improvements to the property, such as installing airconditioners, or a lick of paint, to structural improvements such as adding additional bedrooms, or improving the kitchen, bathroom etc.
- Maximise finance flexibility: when it comes to choosing the appropriate finance structure for your property acquisitions, flexibility virtually always takes precedent over a low interest rate. One of the single biggest mistakes for novice property investors is their lack of understanding of correct loan structures, and the ignorance of the advantages of correctly optimising one’s loan structures in order to secure multiple property
The definition of an optimised loan structure is one that allows the Property Investor to have maximum flexibility and control over every single property that they control or own, either via direct ownership or via a trust/company structure. So, each property is set up in a ‘stand alone’ facility, that is, only one loan is taken against one property, and hence none of the properties are cross securitised, all consisting of a variable true Line of Credit (LOC), with no mandatory repayments, and a self-capitalising component built in with the loan, preferably with separate lenders.
To add to this structure, the Line of Credit facility (LOC) will have an offset facility attached to it, allowing the investor, and their partner to directly credit their salaries and rental incomes into their LOC, which intern offsets the amount of interest that they pay on their Primary Place of Residence (PPR) if they have one.
This is virtually the exact opposite of what the banks want you to have, and it’s exactly the structure that is being utilised by successful property investors who build large property portfolios.
- Insure and protect your assets:
Like any responsible business owner, implementing sound risk management policies will ensure that when things go wrong, and they do when you least expect it, you don’t lose everything. There are a number of insurance policies and approaches that you can implement in order to mitigate potential loss of assets in order to protect your property portfolio long term.
First, the most important aspect of risk management is to recognize that during the building phase of your property portfolio, YOU and your ability to earn income is actually your number one asset, secondary to your actual properties. Therefore, taking out adequate income protection, TPD (total and permanent disability), Trauma insurance, and relevant life insurance, will mitigate any potential risk linked to you and your ability to earn income.
The second aspect to keep in mind is that no matter how much background research, application screening, and due-diligence your property manager undertakes on your potential tenants, things can and do go wrong. So it is imperative to take out landlords insurance prior to the tenant moving into the property, thus eliminating the risk associated with malicious damage to the property, as well as the correct building insurance, depending on the type of property that you are investing in, i.e. house, townhouse or apartment.
The third aspect of risk management is to continuously review your insurance policies, making sure that you are getting the best ‘bang for your buck’, and that you always have the highest level of cover available at the best possible price in the market.
- Review and maintain your portfolio:
The top two questions that every successful investor always keeps in the back of their mind is ‘am I maximizing every aspect of my property portfolio?’, and ‘are these the best properties that I can be holding, given the current market conditions and circumstance?’
Many novice property investors hold the misguided belief that once they settle on an investment property, their job is done…but nothing can be further from the truth. The reality is that your job as a property investor has only just begun.
The reality is that if your goal is to build a large investment property portfolio you must always focus your energy on monitoring the suburb or postcode of your investment property, for two very important reasons. One, the moment a comparable property sells in the same suburb or postcode at a higher price point than your property portfolio, you should automatically request a new valuation from your lender, and increase the line of credit or redraw facility against your property, thus enabling you to buy more property sooner. And two, you need to monitor the area and suburb for any new infrastructure developments or changes that might adversely impact on the medium and long term capital growth potential of your investment property portfolio. This could include such things as a petrol station, power lines, drug rehabilitation centres, high density apartments, etc. In the event that these new projects are planned by the council or private developers you should consider selling your investment property and reinvesting your money in another property.
- Surround yourself with smart people:
A successful friend of mine who runs a large national company once said to me;
‘I know that my business is in trouble if I walk into my boardroom and find that I am the smartest person in the room’.
As mentioned earlier, observations and interactions with successful property investors and developers over the decades, many have come to the conclusion, that most successful property investors are themselves not ‘experts’ in every single field of property investing, rather they become generalists, relying on their Mastermind Team of Experts from whom they will draw expertise and knowledge. These include, but are not limited to the following:
- Your Property Solicitor,
- Your Mortgage Broker or Banker,
- Your Property Accountant,
- Your Quantity Surveyor,
- Your Property Valuer,
- Your Property Manager,
- Your insurance Broker or Financial Planner, and
- Your Property Mentor.
The key distinction to appreciate here, is that your success as a property investor will, to a large extent (especially from the practical execution of your property strategy), be based upon the skill, experience, and knowledge of your team.
As they say, ‘your net worth will be determined by your network’.
- Fail to Plan:
There is a saying that ‘If you Fail to Plan, you Plan to Fail’, recent studies have shown that less than 1% of the Australian population have written goals. Other studies have shown that many Australian adults do not read another book after leaving high school. The saddest part is that many are proud of this…
This lack of planning, and lack of focus on developing financial literacy, combined with a typical ‘scarcity mentality’ is the reason why according to the Australian Bureau of Statistics the vast majority of Australians retire at 65 virtually broke.
Fortunately, the very fact that you are reading this report already signifies that there is a good chance that you might end up in the 1% minority club of Australians who retire with more than $100,000 per year passive income. The determining factor is what action you take as a result of the knowledge that you learn.
I honestly believe, that the only thing that we truly have control over is our decisions. And it is our decisions that will ultimately determine our destination. Jim Rohn, has a wonderful parable of each of us being in a little boat, in the middle of the ocean. And the same winds blow on all of us, the winds of opportunity, the winds of change, the winds of danger, the winds of disaster, but it is not the blowing of the wind that determines our destinations, it is the set of the sails. As an investor you must learn to re-set your sail according to the blowing of the winds. You see, the person with the greatest ‘flexibility’ wins!
Learn to be flexible, and adaptable to the ever changing economic, market and financial circumstances, and continuously reset your sails.
One might ask, ‘How does one reset one’s sails?’ You reset your sails by learning new specialized knowledge, by acquiring new distinctions, and letting go of old inefficient habits and beliefs of the past.
This is the one fundamental reason that I continuously read and educate myself in my chosen field of Residential Property Investing. I have made a long-term, life commitment to never ending, continuous refinement of knowledge, very similar to what the Japanese refer to as KAIZEN.
You see in life there is no such thing as status-quo, you are either growing or you are dying, you are either learning or you are regressing. Many academics believe that there is such a thing as a learned person, I believe this is a great fallacy, there is no such thing as a learned person – you are either learning or you are regressing!
So, now that I have equipped you with the 7 essential traits of successful property investors who build multi-million dollar property portfolios, and I sincerely hope that you I have added value to your knowledge base, what’s the next step?
Or more importantly, you might be wondering how do I take my knowledge and awareness to the next level?
And here is the answer…
Put simply, if you want to increase the level of your results – and I am making the assumption that you do based on the fact that you are reading this report – you need to increase your level of awareness.
In order to increase your level of awareness, you need to gain access and exposure to specialized knowledge ,preferably coupled with mentoring, over a reasonable period of time.
Now this is a very profound statement, so I will break it down further, and simplify it in point form.
- To improve your current results, you must;
- increase your level of awareness, which is achieved by;
- gaining access and exposure to specialized learning, together with;
- mentoring over a reasonable period of time.
Having said that, one of the most neglected aspects of education in Australia today is in the area of financial literacy, or more specifically, how to best build structure and automate a property portfolio from a finance perspective.
That’s why I wrote the book ‘Australian Property Finance made Simple’…but that’s another story.