Lots of investors dream of building sizeable property portfolios but never get there. So how do you know if you're ready to commit and can take on the challenge?
Blogger: Kevin Lee, founder, Smart Property Adviser
In the early stages, every budding property investor has wondered if and when they'd be ready to enter the market.
You aren't any different.
You've probably heard the infamous quotes by the 'big name investors' encouraging you to just get started because "the best time to invest was yesterday and the second best time to invest is today..."
I've heard them as well. The general consensus is that you need to be 'in it to win it' and although this is true, you really need to be mentally and financially prepared if you want to 'win' in the property investment arena. Unfortunately, I learnt this the hard way. When I was 41 years old I came within a whisker of being bankrupted - and had to pretty much rebuild my career, our life and our wealth all over again.
After a successful retail management career I thought I had 'what it takes' to be a success in small business. That seventies song Ego Is Not A Dirty Word still rings in my ear - I had the ego, but not the savvy and street smarts to go with it. It was a quick lesson - the business venture was a total failure and at age 41, I was forced back into a job: an entry-level trainee manager position with ANZ Bank.
Bang ... there goes that ego!
When I reflect now, I can honestly say that I was nowhere near 'ready' to run my own business. In fact, I wasn't even financially educated. At the time I believed I knew what I was doing and was willing to risk it all ... I did risk it all, and I lost.
These were valuable lessons that helped shape who I am today and my 'why'. In fact, I'm thankful when I look back because I've been able to learn from, and capitalise on, those valuable mistakes.
Not only have I been able to acquire a portfolio of investment properties, I also operate a couple of successful small businesses. I've learned many of life's lessons!
When I speak to clients today who have never invested in property they always ask the same question: "How do I know if I'm ready?"
To be honest this isn't a question I can answer; neither can your accountant, bank manager or investment adviser. It all depends on you and the confidence you have. So much depends on your level of financial education; not just your general education.
As it is with everything in life, your success as a property investor comes down to what you know - "the more you learn, the more you'll earn". It's the 'what you know' that usually brings people unstuck because the system doesn't want you to be financially educated.
You need to have a strategy and plan to invest in property and this all begins with your 'why' and your long-term goals. These affect what you buy, when you buy, and how.
Are you investing for capital growth or cash flow? Will you self-manage your investment properties or will you outsource that to a professional?
Once you acquire the right financial education and discover what's best for you and your goals, these are the type of questions you need to ask yourself.
Apart from your financial education, you will also need to be financially capable of funding your investment portfolio. This means that the bank will assess your income, your savings record, your credit history and credit score ... and current asset base and will judge you based on that track record to confirm if lending to you is a risk that they're willing to take.
You need to have enough savings for a healthy deposit or the banks will charge you lender's mortgage insurance (LMI). Do you know what that is?
On top of that, you will also need to insure yourself and your assets as a risk mitigation strategy. Have you given this any thought?
In short, there are so many unknowns for the uneducated that you first need to master and prepare for in order to be mentally and financially ready to invest in property.
Don't learn the hard way like I did.
About the Blogger
Kevin Lee of Smart Property Adviser is regarded by many as Australia's most trusted property investment adviser. Since 1999, Kevin's been the go-to-guy for people when they need honest finance and property investment advice and guidance.