5 Ugly Truths About Property Investment One Cannot Hide

    uglytruthsofproperty

    Have you ever heard of someone coming and selling you a property or an education course highlighting the debt one may have to deal with investing in property?

    Did you get into property thinking you will become financially free?

    My answers to both of questions above are simple.

    A resounding “NO” on first one and an absolute “YES” on second one.

    However:

    Over a period of investing in UK and Overseas, there are some ground rules we have realised and have been working towards.

    How about putting your one reason why a very high percentage tend to get into doing property investments but for one or the other reason stop.

    I am not talking about the minority few who have successfully done it but the majority who struggle to make it.

    Here is the thing:

    There are some ugly truths about investing in property that not many talk about openly and worse, don’t even warn about what’s about to hit them once they start.

    This post looks at the negative shade of property investment and some best practices that one can consider to help him/herself to overcome them.

    1) It’s A Debt Business

    One should be in a strong position to defend before one can go and attack.

    If that is true:

    You should also be in a position to clear the personal debt that you incur, if you want to be able to invest with your or other people’s money.

    However:

    Many struggle with the incorrect deals, numbers, emotional buy and treat it as a race to put themselves into a position of debt that is hard to come out of.

    A person is pretty much in a make or a break situation when this happens.

    If you agree that its debt business along side the prevailing view of financial freedom then….

    Here are few things to work on as quickly as you can to safeguard yourself.

    • 65% debt to equity ratio all day long to be able to survive on the longer run and have that buffer if need be across the portfolio.
    • Investment period for every property you purchase and exits analysed at the end of the period. Assess or forecast what you can sell the property for towards end of the period and what’s the way out if you can’t sell it at market price.
    • Contingency if the property prices do not double in prices in 10 years time. Property development is being done with a single view that prices will double.
    • A life insurance policy that matches the portfolio debt or more as a minimum should unforeseen things happen. Risk this and you end up passing an irrecoverable debt instead of a legacy.

    2) Mindset Matters More Than Education

    Without money you can still survive in business but without right mindset you will struggle all day long in any aspects of life let alone property.

    We did a question on a public investor forum when we started investing few years ago on what has been the biggest learning setting up and managing their portfolio.

    Pretty much 70% of the investment community who built their portfolio have suggested to get the mindset right.

    Yet:

    Isn’t it funny that not one coaching programme within property investment covers mindset to the depth it warrants to be taught?

    Business or property investment is easy and it’s same concepts for you, me or anyone.

    However:

    How we interpret ourselves to meet the challenges thrown at us and how we react to the situations determine on how far we go.

    So:

    Here are few key aspects of mindset that you have to get it right before you can go and build your portfolio.

    I could list a lot here, but above three probably accounts in one way or the other for the majority of blockers.

    3) Failure vs. Success Rate

    Depending on whom you speak to, the failure rate within property investment in UK ranges from 65% to 90%.

    i.e.

    The ones who start investing in property and end up purchasing less than 2 buy to let properties securing atleast £500 in cashflow in 2 years time.

    That says something.

    However:

    If you put your urge to do something outside of work or setup your plan for financial freedom, here are few questions to ask….

    • Can you invest time and view properties yourself for next 3 years, in other words can you commit?
    • Are you investing with a purpose to own properties and not just work with few strategies that makes money without owning?
    • Do you have your own money for your first 3 properties or at least the first one?
    • Have you equipped yourself with right education to be able to push yourself through?
    • Can you spend some time to put some basic metrics and evolve the system that works for you?

    4) Most Need Another Income To Survive

    Cashflow does not save the day at least for first few years when you start investing in property.

    As much as I would love to say this is all about financial freedom and you don’t need money to invest in property…….

    That’s hardly the scenario for most.

    The majority will need income from a different source to survive or own assets in property and to be able to get mortgages or raise investment funds.

    When you get started, property cannot be the lone source of income to buy properties and scale your portfolio.

    Half the investors I know are either network marketers, in full time jobs or own other consultancies.

    Don’t let anyone tell you, you can be financially free in 6 months time and live on passive income.

    Here is the thumb rule:

    When you earn passive income that is more than your earned income, you probably are beginning to talk about financial freedom.

    5) Systems & Analytics Are A Big Gap

    Most investors are happy to track the basic metrics to measure their portfolio which includes cashflow / cash / return on investment / yield.

    But not many measure these metrics on a monthly or periodic basis. The first challenge when you start building your portfolio is to make the portfolio cashflow as per numbers.

    It took best part of over 6 months for us to hold back on buying any units before we cleaned up the existing portfolio and see the trickling cashflow.

    But:

    In that process we had to put systems in place that works for us for many things including viewings, finding BMVs, monthly metrics and minimum metrics to measure our debt ratio, tenant retention, offer acceptance rate and others.

    Systems and analytics is an area not many talk about for one or the other reason.

    Here are few start up questions to get you thinking on what you can do to optimise your portfolio.

    • What systems do you have in place currently?
    • What systems should you have to improve your productivity and cash/cashflow?
    • What analytics you think you should track to understand your market and portfolio better over a period of time?
    • What templates you need to be able to track those analytics.

    In conclusion, it gets easier to succeed in property investment as long as you look at this as a business and keep improving those that work and discarding those that don’t work for you.

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