In the last two months, Bill Zheng, CEO of Investors Direct laid out proven investment strategies to help you succeed as a property investor. He showed how you can adopt the right property systems and money systems to maximise your gains. This month he looks at the final piece of your property investment puzzle...your people systems.
To be a successful property investor I believe there are 3 different types of systems you need to master:
1. Property Systems
2. Money Systems - your Capital Plan, Cash Flow Plan and Finance Plan
3. People Systems - your team and self management
When thinking about your People Systems there are two things to consider:
1. Team Management
2. Self Management
Investors in many other types of asset classes (like shares, managed funds, indirect property, deposits, super etc.) play a relatively passive role in the investment decision making process. The majority of these type of investors allow their advisors (fund managers etc.) to take the drivers seat and make their decisions for them.
However, being a direct property investors, you have chosen a real niche to focus on. The niche is usually too deep for general advice and given the nature of property, you need to be more "proactive" rather than rely on others to make investment decisions for you. You are fully responsible for your success and failure, not a fund manager or a financial planner.
If you're like majority of property investors who are conducting their property business on a "part-time" or "casual" basis, then it becomes critical that you learn how to leverage your time and capacity. The best way to do this is to focus a good proportion of your time carefully selecting and then managing your team of advisors. To be successful you need to assemble and manage the best team you possibly can.
Who do you need on your team?
On your team there are a number of key players that can help you:
• A mortgage broker - to help you plan your debt structure to maximise your potential as a property investor and manage your financing risk;
• A lawyer - to help you with setting up the correct structures to invest in and conveyancing;
• An accountant - to advise you on asset protection and taxation;
• A buyer's agent - you may also need to find one or more buyers agents (property sourcer) to assist you with your property selection and negotiations. Particularly if you are time poor and want to invest in different markets that are interstate;
• A property manager - to assist you finding tenants and with the management of your properties;
• A builder - if you are interested in pursing more active property strategies like renovations and developments;
• An architect or draftsman - if you want to do renovations or developments;
• A town planner - if you want to get into renovations and particularly developments town planners can help you get your application through the local council;
• An insurance broker - to assist you with public liability insurance, landlord insurance, home and content insurance;
• A mentor - you can learn a lot for reading books and magazines, watching DVDs and attending seminars, but finding an experienced investor who has already achieved what you want to and is willing to give you some of their time and knowledge is a sure fire way to take your investing to the next level. You should never underestimate the importance of experience.
If you are a beginner investor, it may look daunting to find good advisors in all these areas, but in reality, people know people, finding a good advisor can usually lead you to other good advisors. Similarly, one bad advisor can also lead you to other bad advisors. It has been said that you can tell a lot about a person by the friends they are associated with, this is applicable to advisors.
You can also tell a lot about an advisor by their client base. In general, you should seek advice from advisors who have been specifically servicing property investors for a period of time. Dealing with experienced professionals means you won't become a guinea pig. It will be a lot more cost effective for you as well because you are not paying them to learn.
Advisors are usually quick learners in their own field, you should only go to them with a specific task, not a general idea, otherwise you'll be paying them to learn and coordinate with other advisors. It is very critical to ask them when was the last time they performed such an activity and how successful it was. If the advisor hasn't done this recently or has specific experience in the area, you should reconsider your option or ask for a referral to someone who has done this recently.
For example, a mortgage broker focusing on property investors will give higher priority to higher leverage than lower cost, whereas a mortgage broker focusing on home buyers will give higher priority to lower cost than higher leverage. It is very hard to switch the two types of thinking as it is habitual for most mortgage brokers, instead of hoping that they will change to your liking, it is much easier to go for the right one in the first place.
Take responsibility for your team
We have all heard of the phrases "surround yourself with people who are smarter than you", and "nobody cares about your business more than you do".
What they mean is that there is not much point surrounding yourself with smarter people who don't care much about your business. It is your job to make sure these smarter people are accountable for the outcome you want to achieve.
This is probably the main reason why the best advisors still have unsuccessful clients, because these clients either didn't know what they wanted or simply left everything to the advisors to decide what is good for them.
When you don't know what you want, anything will do; when you don't care, nobody else does either.
Many people use the notion of "surrounding yourself with people who are smarter than you" as their excuse of ignorance in certain areas. The truth is that the more you know, the better results you can bring out your advisors.
It is critically important for you as a property investor to understand that you are ultimately responsible for the success and failure of your own property investment business. You are responsible for selecting your team members and are responsible for managing their performance in your property investment business. There are many tasks you can delegate to your team members, but you should never delegate this task, ever!
You need to think of all your advisors as contractors to your business, i.e. you are the boss in your own property business. They may know more than you do in certain areas, but you are still in charge and need to hold them accountable for their performance and contribution to the success of your business.
We teach others how to treat us, and we get what we can put up with generally. Therefore it's important that you take some time to define and then clearly communicate to them your boundaries and expectations of them upfront. You need to make them very aware that you have high expectations for your financial results.
Remember your primary goal is not necessarily their primary goal. The more you communicate openly with them about what you want to achieve and in what time frame the better. There is no need to make one-sided assumptions or to take things personally. You are in the property investment business to make money, not friends or enemies.
Know your strengths and weaknesses, and play to your strengths.
We touched on the different types of property investors in the article on Property Systems. Over the years of dealing with thousands of property investors, we can roughly put them into 3 categories:
1) Passive property investors;
2) Normal property investors;
3) Active property investors;
Let's examine the 3 categories one by one:
1) Passive property investors
Passive here means the investor spends very little time to look for investment properties or find out about property investment. They pretty much rely on others to tell them what to do without having enough knowledge themselves or doing sufficient due-diligence.
Investment is an effort for reward kind of business. Because investors in this category put in very little effort, they normally could expect lower returns for their investment, at least initially.
2) Normal property investors
Normal here means the investor puts in some effort to get the basic understanding of property selection and some spend money to pay for advice or sourcing service.
Again, these types of investors usually can expect higher return for their investment compared to passive investors because they do work on it a bit. Investors in this category will buy properties with reasonable due-diligence and get advice on structuring; many of them will pay for professional help to purchase properties.
3) Active property investors
Active here means Do It Yourself. Investors in this category usually want to know just about everything they need to know about property selection, tax, legal and finance. Many of them not only select the properties themselves, but tend to pursue more active property strategies like renovation and developments.
Investors in this category would usually expect a higher return on their investment due to the fact that they have put in so much more effort. As long as they don't spend too much time finding out how and what to do instead of actually doing it.
Regardless of whether you are a "passive" or "active" investor it's important for you to recognize just what type of investor you. Recognising this will drive how you conduct your business, let you understand what type of system you will need to build and dictate what team members you will need and how closely you will need to work with them.
You will also need to explore and understand your own personal strengths and weaknesses. Business guru Peter Drucker has observed that... "most people think they know what they are good at. They are usually wrong...and yet, a person can perform only from strength". The world of business has developed countless competency models over the years, most of which are oriented towards describing what is wrong with you and how to improve.
Recent behavioral science research indicates that understanding and having the opportunity to develop your strengths is a much more important ingredient for your success compared to improving on your perceived weaknesses for your current role or title. The same is true for your investing. What are your strengths and talents? What property strategies can you pursue that will compliment these strengths? Do you need to find partners with complimentary strengths to help you achieve your goals?
If you can become aware of what type of investor you are and what our strengths are you will be ahead of 95% of investors out there. If you can align both of these and incorporate them into your system you will multiply your profits time and time and again.
Take emotion out of your execution process
Emotion is useful to help us commit to planning something new, but when it comes to execution of the plan, it'd be better to leave emotion out of it.
For example, you may get angry at the fact that you are overweight and decide to go to the gym for a year, so the emotion or anger gets you started. If your attendance is based on how you feel and what you think every morning when you get out of bed, it's very unlikely that you will go consistently; hence your day to day feelings dictate your performance and your result will not be as predictable.
It would be almost impossible to stick to the plan if you are relying on how you feel in the morning to decide whether you should go to the gym.
Creating wealth through property tends to be a very emotional subject for many people. When you are considering spending many hundreds of thousands of dollars, using your own hard earned savings and getting a mortgage it's hard not to be emotional.
Our emotions are not very dependable so it's wise to try and take the emotion out of your execution process so that you can give your plan a fair go. This is one of the key reasons why we focus so much on the importance of building systems.
Remember that systems take the emotion out of what you do.
Create a regulated action plan
A regulated action plan is the sum parts of your property system and money system (Capital, Cash Flow and Finance Plan). Following a regulated action plan is much more systematic and reliable way of achieving your goals than following your feelings. Consider setting up a regular time for a review with yourself or with key members of your team.
The more active you are, the more regular you should review your situation. The larger the portfolio (or more number of properties) you have, the more regularly you should review.
• For a more passive investor, you should have at least an annual review for every 3 properties you have, i.e. if you have 6 properties, you should have a review every 6 months.
• For a more active investor, you should have at least an annual review for every 2 properties you have, i.e. if you have 4 properties, you should have a review every 6 months.
Very often, we rely too much on how we feel or what we think when we come to an investment decision. A regulated action plan can take out the feeling and thinking on the day and often deliver a more predictable result.
Sometimes I come across clients that I haven't seen for a few years. They often tell me they wish they had invested a bit more a few years ago. When I ask them why they didn't do so, their answer is usually not because they were not in a financial position to invest, it is usually because "I had other stuff going on in my life at the time and I didn't feel like doing anything else."
We all have stuff going on in our lives most of the time, if we have to wait till we feel better to do certain things, we may have to wait for a long time to do them.
Unfortunately, property investors can't afford to wait, as time is where the money is.
While we know emotion can get us into doing certain activities, it can also stop us as well. This notion that "feelings follow behavior" also has huge implication for people who have great difficulty starting something new like:
• Buying their first investment property;
• Doing their first renovation;
• Doing their first development project;
• Taking on more than $1m worth of mortgages the first time;
Let me apply "feelings follow behavior" to this situation. If
• Behavior = thinking about something and doing nothing; and
• Feelings = fear of the unknown;
Can you see that our feeling "fear of the unknown" actually follows the behavior "thinking about them and doing nothing"?
So if we want to feel better, all we need to do is to change our behavior to the opposite, in this case that is "stop thinking about it and do something".
That is why you hear the saying "too much thinking can do your head in". We are not what we think, we are what we do. We often need to take actions before we even understand why. That is, to act first. The understanding will follow.
Taking action is one of the fastest and most effective ways to get out of our own thinking and emotional traps, while you're taking action, you're less likely to worry and more likely to be intuitive. Having an action plan to follow is the only way to ensure that we can take the planned actions beyond all reasons and excuses.
Finally, like anything else, the investment journey is a home coming journey. The longer you stay on this journey, the more you will realize that you're the most powerful person in your life, and never let anyone to make you believe otherwise.
This article was written by Bill Zheng founder and CEO of Investors Direct™ (with contributions from Tim Riley). Investors Direct is a property finance company that provides financial solutions exclusively for property investors and understands that your mortgage is an asset, not a liability.
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