A Couple in their 40s are interested to invest in real estate. No Why yet and no planning. But they have been to many seminars and are KEEN to make some money.
They’ve been told they should be better utilising their money and they should be planning for retirement. They’ve heard subdividing property is the way to go to achieve “Profit” which should cover that.
They take what they’ve learnt from their “Subdivision Masterclass” and go and source a property with subdivision potential in a great (if a little expensive) area that they’ve always liked with high sales prices and very nice front lawns and low crime and consistently steady growth.
They demolished the home and built two new ones based off the agent’s recommendation because new homes in this area are in “hot demand”. They now have two new homes in a great area rented out for some nice negative gearing, whoohoo less taxes to pay!
But they will need to hold them long term to see enough capital growth to make the exercise worthwhile after they paid such high prices for what is considered standard for building in this area. This will be a 5-10-year plan now.
With their Money tied up they will manage to repeat this process once or twice more before they retire if they can handle the stress. If they sell any homes early, they will lose their profit and invalidate the purchase altogether. If the market changes to quickly or if interest rates rise, they could be in hot water as their homes are in popular areas and if the economy stumbles their area might go through a slump for a few years. They don’t really know what this will mean for them in 10 years. They are focussed on the How’s and What’s and are losing track of the Why. They may not lose money, but they have lost other opportunity In Property Investment.
Now let’s look at the same Couple. This time they’ve sat down and discussed their motivations and plans. They wish to retire by 60. They want enough money to travel twice each year, they need to pay off a 200k mortgage and they want about 200k per annum to support them in retirement. They can lend and buy a home up to 400k and they have 200k they can draw on in equity.
They seek the advice of a Property Investment expert. This expert asks them their WHY. With that plan in mind they advise that a diverse strategy with a mixture of long term holds and value addition and development will get them on track to achieving their goals. They need to have at least 5 – 10 properties paid off and rented within 15 years. If they get on track now this should be easily done.
They secure a property with the help of their expert team. This ones in a mid-range area with strong sales numbers but more affordable prices. This is to allow them to sell quickly and to afford a greater development rather than a more expensive home.
Their team finds them the perfect development to suit their needs. It has value to be added, multiple development options and a diverse outcome at the end with positive rental returns and a small mortgage. This allows them to repeat this process again quickly while also retaining the best of each development for long term growth, positive cash flow and to grow their ability to borrow. Soon they will be doing two a year keeping one or 2 from each development.
Within 7 Years they have done 10 deals and have paid off 5 homes with the rest paying themselves down slowly. The interest rates have risen but they were ready and sold down a few properties to hedge against the oncoming changes. They now have the ability to continue investing without the need to work or they can continue working to further supercharge their ability to lend. They have options, and they know exactly where they will be in 10 years because they have been planning it this whole time and with the help of experts to answer all the What’s and How’s they have been able to achieve their WHY.
It’s very easy to boil all these things down to dollars and cents and over simplifying is a common mistake for new and even experienced investors trying to juggle a busy life while also trying to tackle complex investments. Seminars will often focus on the dollars or on the statistics but really the measurement should be on the happiness of the investor and how it furthered their plans and met their needs.
Remember this: EVERY property is different, and each good investment should have multiple success strategies and making sure you choose one that’s right for your WHY is the most important part.