In this blog I’m going to talk about why strategy’s important. I’m also going to talk about my simple four step process to creating your own investment strategy. It really looks at where you are right now and where you’d like to be in the future. We’ll look at what’s holding you back right now and also help you to identify your next step so that you can take action and implement your strategy, which is what it’s all really about.
When creating an investment plan your strategy is essential. Without understanding where you’re going you’re only going to be continually confused by differing opportunities. From aged 17 to 24, around the time that I finished university, I had no financial plan and no financial strategy so the money came in and the money went straight back out.
I did some cool trips and I lived out of home and had a really fun time with my friends but I didn’t really have anything to show financially for that period of my life. Strategy is really important in the sense that if you know where you’re heading and there’s a strong enough reason to get there then the grind and the hustle doesn’t seem so hard.
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Before I start every year I sit down and I create a strategy or a plan for the year and set my goals. I always have a strategy for my week and what I’m hoping to achieve out of it. Before I start every day I sit down and think about what’s important for that day and what I want to achieve out of it. I’ve been doing this for the last four or five years and I’ve found I achieve things a lot quicker. I enjoy the process a lot more because I’m focused and I know what I’m working towards. I now understand the why in my life.
Understanding your why is so important. Setting a goal of being financially independent doesn’t mean anything if you just want the money. Setting a goal within 10 years from today to cut down to three days of week of work or your family around Australia in 12 month’s time or setting a goal to pay off your own home outright but not using any of your own money over the next 10 years is like big goals that pull you through all the stuff that you need to do to actually achieve it.
The first part of setting a strategy is about getting real and being vulnerable to where you actually at right now. Most people find this really difficult to do and there is a process for doing this. We all have challenges, we all have things that we’re going through these can all be overcome with learning, education and taking calculated steps in the right direction.
For anyone that’s struggling to take action there’s a great book called The Compound Effect that I read recently. It looks at the daily activities like eating well, spending time with the people you care about and spending a little time focusing on investing, business or building your career. It was astounding to look at some of the stories in the book of where people had got to as a result of taking tiny little incremental steps over a long period of time.
Achieving anything, especially property investment financial freedom, takes time. You’re not going to do it today and you’re not going to do it this year. It could take you 10, 15 or 20 years. If you’re going to be here in 10 or 15 years anyway, you may as well be financially independent. Everyone I know who doesn’t have a strategy, isn’t there. I’ve never talked to a single person that knows exactly where they’re going that either wasn’t already financially independent or wasn’t well on the path.
It’s the people that don’t know where they are and don’t know where they’re going that struggle. I look at my income and my savings position at the moment, when I’m looking at where I am right now. I look at all of my assets and all of my liabilities. Assets are basically your properties, shares, super, and then I look at my liabilities, which could be credit cards, mortgages, personal loans or car loans.
I then look at the properties that I currently hold. I have a look at the total income coming in per week and the total expenses going out per week. I try and figure out what my surplus is each week if any.
Then I also look at where I’m at in my life. What’s happening right now and where am I going to be in the next few years. Do I hate my job and need a career change before I start investing, because I don’t want to start investing and be stuck with that job? Am I in a relationship that’s not working or a relationship that is working well. Could we come together and achieve this a little bit sooner rather than later.
The key is to be honest with yourself and where you are. Am I going to have children, do I want to buy a car, do I want to go on a holiday? Really understanding where you are right now and what’s immediately in front of you.
The second thing to create an epic property investment strategy is understanding where you want to be. For me, that comes in two steps. First is to look at where I want to be 12 months from today. Second is where I want to be 15 years from today. Everything in between is just the journey and each year I’ll figure out my next step.
Knowing where I want to be by the end of the year, for example, owning one more investment property might be my goal. As well as, knowing where I want to be in 15 years. This might be having $200,000 a year in passive income from investment properties that I own outright as well as owning my own home outright. Understanding where you want to be (your financial goal) is about really understanding what you want to be doing with your life on an annual and a weekly basis.
Who do you want to be spending your time and who with? How much travel do you want to do each year? Do you want to start your own business because you no longer need to go to work for someone else? How many properties am I going to own? What types of properties are they going to be? This is your future vision that pulls you through all the hard stuff that you’ve got to go through to actually achieve your goal.
There’s no secret that there are challenges associated with actually doing anything meaningful with your life. There’s going to be pain and it’s going to be uncomfortable. Having a strong enough vision or a strong enough reason will pull you through the pain as opposed to trying to push it, which a lot of people do. Pushing and smashing through walls doesn’t feel good, I did it for a long time. It’s draining and you don’t have the energy to go that extra mile and do what needs to be done.
You don’t have the energy to come home at night and spend a couple of hours learning, reading or researching on Realestate.com or a Domain.com or begin calling agents after a big 10 hour day. If you’ve got a strong enough why it will pull you through all of those activities and it will start becoming a joy and hopefully a passion as well.
The next step is to get real about this stuff. A lot of people don’t do this, they’ll focus on where I am and where I want to go.
Understanding what’s holding you back. My wife and I had our first baby pretty early. Around this time we had bought a number of properties and were in a pretty strong position. I was working away and I worked out that I would lose 90% to 100% of my income to come back. At the time, I was earning some really good money but I wanted to come back and live with her and so I basically had to change careers and transition into a new space, which ended up being the most amazing thing ever.
We were putting all our extra money into properties at the time. Then when I came back, I wasn’t earning as great money and my wife was pregnant. Our costs were going up and she wasn’t going to be producing any income. I just had to realise that for the next 18 months, until I was able to increase my income and she went back to work, that I couldn’t do anything with property. I decided to use this time to learn more and be patient, knowing that we would get through the hard time and we could come out the other side.
Same thing happened when I started my business. It’s really tricky in Australia when you start a business to borrow money. It took me two years after starting my business to actually be able to go to the mainstream big banks for lending. I prefer to use the big banks rather than the little tier guys that may or may not go bankrupt at any point. Eventually I was able to borrow money again to continue to invest in property, which is my passion.
Things like this come up and you’ve just got to be real about them. What’s holding you back? Are you getting married in the next 12 months and about to spend $50 thousand on that as opposed to an investment? Do you hate your job so much that you have to leave it and start from the bottom again? Are you going to be studying for the next few years? Do you have children and instead of working five days a week you will be cutting back to three and for the next couple of years your income will be reduced? Do you have plans to go on a huge holiday that’s going to cost some money or take you out of work?
Investment setbacks can be lifestyle based like the examples listed above and they can be a bit or the can be a bit more serious and long term. For example being overloaded with information, anxiety or fear of taking the first step. You may not have a team of advisers around you or you don’t have a mentor or a coach. You might have limited market and should just be researching and learning before you do anything.
There are all these challenges that I’ve had to face and that we face as investors all the time. They make the whole process interesting. The person that you become by working through all this stuff is great. Overcoming your past fears and set backs is a big thing. Learning how to budget, save, to invest a dollar instead of spending it, to cut the liabilities out of your life are all challenges that we have to go through but make us such stronger people long term.
The fourth step is an important one and most people don’t focus on it at all. Many people focus to heavily on the next step and as a result, cost themselves exceptionally by not focusing on the bigger picture as they don’t really understand how to create wealth through property. Then there are also people who spend too much time planning for the future and continually use any excuse to not do anything and so they aren’t clear enough on the next step to make any progress.
Remember you don’t have to know every single part of a journey, you don’t need every single question answered right now. You can simply identify what’s next, you can focus on one market, you can focus on one suburb, you can focus on one type of property as opposed to wasting all of your time on Realestate.com and domain before you even understand the market. You can learn from blogs, podcasts and books. I produce heaps of Pumped on Property videos and I do a great podcast with Ryan for On Property.
There’s another great podcast by the Property Couch guys, down in Melbourne. Some great books that I’ve read recently, The Secret Life of Real Estate and Banking by Philip Anderson, Mastering the Australian Housing Market by John Lindeman, The Compound Effect. There’s just so much epic stuff out there. If you’re not ready to do something financially or you’re not mentally ready to take that plunge then there’s great resources in the market to help you make that decision.
For me, I obsess about my next step. Right now, my next step is just consolidation and paying down some debt this year, I might even sell a property to help with that. At different times, my next step might have been buying a property, so I would obsess about that one thing until I got it exactly right and felt comfortable with my decision.
Your next step might be going and talking to a mortgage broker or booking a meeting with someone in the industry to talk about your situation and see if you can do anything. It may be to create a budget and start saving some money. Maybe you’re ready to buy a property but you don’t feel comfortable just yet, so you start researching buyer’s agents and people that can help you take that step. Or you might start obsessing about a marketplace and learning everything you need to know in order to make a great decision.
Your final step is to actually just get stuck into it and make it happen. For the last 5 years I’ve talked to 600 to 700 investors every single year and the number one thing stopping people is themselves.
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I’ll give you an example of a gentleman I spoke with recently, John Smith. John wants to be financially independent in seven years. Both John and his wife are earning good income and living in Melbourne. They’re in a position and own one property and are now looking to move forward. Financially John and his wife are in a good position to do this and has been for some time.
John then mentioned to me that he has watched every one of my 500 videos on my you tube channel as well as the On Property channel. As we got into more detail about his situation and I discovered the reason he had hit a road block was due to his great fear of taking action. John has been researching and educating himself for three years and has unfortunately missed an amazing opportunity in Melbourne to possibly make 40% while sitting on the sidelines.
There’s no amount of extra information that John can collect. He just needs to get stuck in and start making it happen. Whether he does that with someone else, whether he does it himself or whether he does it with us, it doesn’t matter. It’s just about getting the confidence behind him to take action.
I think a lot of people have problems taking that step or making it happen for a number of reasons. They might know deep down that they don’t have the knowledge and skills to deliver or they’re not clear enough about their long term strategy. Maybe they’re not being honest about their current situation or about the things that are holding them back. Unless addressed and overcome these things are only going to continue to be there.
Sometimes it’s also better to do absolutely nothing than to do something. I talk to more people every day that have made shocking decisions in the past; hot spotting, bought units at the wrong time in the wrong markets, bought regional properties, bought properties over value or built brand new stuff and have been stitched up by the developer.
I spoke with someone recently who wanted a second opinion on a property he was buying. It was a piece of land in South Brisbane and he planned to build a dual-occupancy. He was paying a hundred grand more than I knew he should be paying for it. I told him and he still went ahead with it. Sometimes people are simply just stopping themselves as well.
Creating a property investment strategy is super simple. Identify where you are right now, identify where you want to be in 12 months and 15 years from today. Get real with that and have some fun doing that. It’s like planning your future, you’re a kid in a candy store and it’s your life, you can do whatever you want to do.
Identify what’s holding you back and identify what your next step is. For those of you that are struggling with this and that are in a position to seriously consider buying a property in the next 12 months, this is what we do. We’ve bought over 130 million dollars worth of property for our clients.
To book a complimentary strategy session with the team at Pumped on Property click here. We would love to spend some time learning about where you are right now and where you’re looking to go in the future.