Are you interested in investing in property, or are you already a property investor?
What type of property investor are you?
What I am referring to here is specifically the process you will undertake to invest in a property.
While there are many people that invest in property, the way they choose to invest can be very different.
While opinions may vary on whether there is wrong way or right way, in my mind, there is a way that will allow you to achieve superior results.
So how do you invest?
Are you more of a Speculator or a Strategic Planner?
Here are my thoughts
I believe that the majority of investors are really just speculators.
They tend to make decisions based on very limited, superficial data, which in many cases, is being analysed to support a decision they have already made.
Their focus becomes about a certain property or a location that has caught their attention.
Perhaps it is around the corner in a neighbourhood they are comfortable with, or maybe a suburb that made the news headlines the night before.
Maybe a friend at a BBQ has given them advice on a potential hotspot or a promising regional town.
Once a speculator has made their decision, they then go about undertaking the “research” component to justify their decision.
But there is no thought on how it will fit into their portfolio or if it moves them any closer to their end goal.
As a result, they are quite often left disappointed when the property does not grow in value and does not as allow them to build further wealth.
They often justify this by stating that “it is not costing me anything” as the rent covers the outgoings, when in fact the real cost is the opportunity cost.
In my mind, it is the reason that 90.13% of investors only own one or two properties and many sell within the first few years.
The strategic planner
The most successful investors treat their portfolio like a business and they begin with the end in mind.
They follow a structured framework and process working backwards from their final destination.
They can reverse engineer back to the here and now and understand how to set up and structure their portfolio first.
They can then undertake independent analysis using a top-down approach, analysing the right time of the cycle and then onto the right state, suburb and location and then finally they get to the property.
They are then able to make a shorter-term decision while keeping in mind their longer-term goal.
For the Strategic Planner, the property is the final piece of the puzzle, not the starting point and as a result they make better long-term decisions.
They understand that the right property is the one that gets them into their next property faster to accumulate greater wealth.
The Strategic Planner also continues to check in and monitor their portfolio to ensure they are on track and replace inferior assets if required.
It is very much like how a business owner would operate in their business.
So, is there a measurable difference between the Speculator and the Strategic Planner?
A recent study from the team at Metropole would suggest that there is.
The Australian Tax Office regularly releases their statistics on property investors and how many properties they own.
In the long run, the number of properties an investor owns is not as important as the size of their asset base, but it is clearly difficult to build greater wealth with only 1 or 2 properties.
By taking a closer look at our clients at Metropole, you can see from the following chart, overall, Metropole clients have significantly outperformed the averages.
All our clients have a strategic plan in place and follow our top-down approach and with the outcome being that they are able to accumulate more properties.
This in turn enables them to build wealth faster to ensure they are working toward their end goal.
So, what type of investor are you then?
Are you someone who buys more emotionally and falls for a specific property or buys on the impulse of a certain location?
While then quickly doubling back to find some facts and figures to back it all up?
Or do you take a more strategic approach and follow a certain process or framework to avoid all the emotion.
The number of properties in your portfolio is secondary, there is no doubt to build wealth you are going to need to accumulate a number of assets.
But it is quality over quantity.
Evidence suggests that those who make their decisions strategically, putting the facts and data first and the property selection last, will achieve greater returns.
This will in turn enable them to accumulate further assets to build and multiply their level of wealth faster.
Just like our clients at Metropole who we have put a Strategic Property Plan in place for.
Take out the emotion and replace it with a team of experienced professionals who will build your wealth strategically, following a known and proven framework.
This will greatly increase your chances of becoming one of those very few investors that achieve wealth producing rates of return, to give them and their families the choices they desire.
Brett Warren is a director of Metropole Properties in Brisbane and uses his 18 plus years property investment experience and economics education to advise clients how to build their portfolios.
He is a regular commentator for Michael Yardney's Property Update.
Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.