Property Investing – keep it simple, stupid

29th Jul 2015By: Margaret Lomas

I am continually surprised at just how often property investors get started on property investing prior to actually knowing more about the process and becoming suitably educated.

Imagine if you had to go to hospital for an operation, and the doctor who attended revealed that they had always wanted to be a doctor, and they were going to try the approach of jumping in the deep end and learning as they went along. They figured that if they got it wrong, they would learn from that, and if they just followed the crowd and performed operations as everyone else did, they had a pretty good chance of success.

Sounds mad, yes, but this is how most property investors get started. Either they have a notion that they would love to buy property, and away they go, or a property presents itself and so the decision is made to become a property investor, based on the opportunity which that one property presents. It’s little wonder that people make grave mistakes, often bad enough to turn them off property investing forever.

Get back to basics

Before any property is purchased, the basics must be in place. This includes a complete understanding of not only your current financial position, in terms of income, expenses, assets and liabilities, but also of the time you have available until retirement. This is a crucial element that most people miss – what you buy, and where you buy depends on many things, but one important consideration will always be the length of time you have available during which to hold the property.

If your time period is short, then you must buy the property with the greatest chance of growth in the shortest possible time. Cash flow, apart from ensuring that you can afford it on a day-to-day basis, becomes secondary to needing the property to grow and create equity for both further investing and for ultimate retirement income generation.

If you have a longer time period, then waiting for growth is more possible and achieving good cash flow (which allows you to wait for that growth) becomes more of a driving factor.

Beware the red flags

Even after you have considered your personal financial circumstances, you shouldn’t get started until the basic education has been obtained. I have to say that, on questioning every person who has ever told me about their failed property investment, I discovered that it was actually the person who failed the property, rather than vice versa. Usually I discover prudent facts, which were available at the time of purchase, which would have waved a bright red flag at me, telling me not to buy, but which the investor missed through lack of education.

There is no property purchase that must be made immediately, and the time will always be right to get started. Don’t be fooled into thinking that you might be missing the bargain of the century and make a purchase before you feel confident you have all the knowledge required to make a sound judgement as to its investment potential. The person selling the property to you, or anyone at all involved in the transaction, will not have your best interests at heart and will tell you what they need to help you over the line. Property bargains will always be there to find, and it may be better for you to wait and be sure, than to rush in without suitable knowledge.

Learning is an ongoing process

Finally, don’t fall into the trap of thinking that, once you have read a few books or attended a few seminars, your education is finished. Like the doctor who must remain at the top of their field through constant and ongoing education and through consistent fellowship with their peers, you must understand that property investing is a vastly changing landscape, which needs constant re-learning. It is ultimately linked to our economy, so we must constantly review not only what we are doing but also what we will do. We must respect and acknowledge the input that even those less experienced than us can provide, and consistently seek out opportunities to mix with others who are on a similar path to us.

Life is an ongoing learning experience, and so is property investing. Your work towards becoming a successful and savvy investor will never stop. Once it does, you can be guaranteed that you will lose your edge and start making mistakes. Open your mind, learn all you can when you can, and never stop seeking out the knowledge of others. It works for me!