Do you know your limitations as a property investor?
The three limitations for investors that I see over and over again are:
- Time.
- Skill set.
- Risk appetite.
And most investors I meet with are limited by more than one of these.
When building your investing strategy, we need to know how each of these limit your success. And more importantly, we need to find out how can these challenges can be overcome.
1. Be realistic about the amount of time you have to invest.
Someone who has a full-time job and who is supporting a family is going to have less time to invest than someone who is full-time in the market. A common mistake many investors make is thinking all property investment is ‘pretty hands off’. But in reality, investing in property takes a lot of time – especially if you are looking to buy and renovate to add value.
Of course, there are other types of investing that are less time consuming. If you are looking at buying an off-the-plan apartment, for example, your time is mainly going to be spent on due diligence and market research.
Many time-poor investors opt to start their property portfolio with buy-and-hold properties, until they have capacity for the more time-guzzling projects.
2. Use your skillset, and fill in the gaps with expert advice.
If you ask almost anyone, most people will agree that they make rational decisions using the best information available to them. They will probably also agree that there are, of course, people who know more than them in every field.
But for some reason, when it comes to property investing, people do not make decisions consistent with these beliefs. Instead, they go it alone and fail to get all the advice they can from more experienced people.
So what kind of skills might a ‘perfect’ investor have? Negotiating, assessing growth potential, conducting accurate cash flow analysis, market research, budgeting, planning long-term and short-term finances, choosing cost effective contractors without sacrificing quality, understanding work required versus results… I could go on.
The reality is, there is no such thing as a perfect investor. There will always be gaps to fill. Identify where you need professional advice by ranking investment-related skills from your strongest to your weakest.
3. Know your risk profile.
To find out if your capacity for risk is a limitation for your success, you need to conduct a risk profile assessment. Risk profiling is an integral part of an investor’s strategy; in fact, without assessing your risk, your strategy is almost useless.
We use the FinaMetrica Risk Profiling system to have a better understanding of how to approach each client’s risk.
The FinaMetrica risk profile assesses three components:
- The risk required to achieve your goals;
- The level of financial risk you can afford to take; and
- How much risk you are comfortable with.
It is incredibly important to assess each of these as accurately as possible, and to identify any mismatch between them. For example, if a client’s goals are too optimistic for the desired timeframe, we will guide them through trade-off decisions.
Do you think any of these limit your success?
It’s actually not uncommon that I will talk to clients who don’t even know these limitations exist, let alone think they apply to them!
If you want to build a successful property portfolio, the most important thing is to have a realistic strategy, which means honestly and objectively assessing each of these three limitations.
When you sit down and start building your strategy with a professional, they will work through each of these limitations with you. Once you see your challenges, you will begin to see your path forward.
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