One of the truisms of investing is that, despite applying strategic planning and due diligence to reduce the risks, your best laid plans will likely go astray at some point.
According to the 2016 census, of the 2,097,392 Australians who invested in property, approximately 71 per cent (1.49 million) owned just one holding, while those that built a life-changing portfolio of six or more made up just one per cent – or 19,967 – of the pool.
Most buyers begin investing with the intention of owning multiple assets, but more often than not, a hiccup in the process causes their resolve to falter. They can’t see past the problem, so decide it’s all too hard and give up.
All investors hit hurdles capable of derailing their journey. But rather than letting a roadblock ruin your plans, think of these challenges as opportunities to learn and move forward.
Here’s a six-point strategy that will help any investor avoid being overwhelmed by problems, so they don’t throw in the towel and give up forever.
This part of the process begins early. After you’ve defined your goals and wants, and plotted a general course to help you get from A to B, it’s time to get down to the nitty gritty.
Try and apply your current knowledge, via the guidance of an experienced professional, to consider what your investment journey will look like in some detail. Think about the number and types of investments you’ll need over a defined time frame to achieve your dreams.
Breaking down the big journey into small, achievable steps prepares you for tackling problems.
Just know that a stepping stone hiccup, like one bad tenant, is a singular stumble, not a total derail.
While defining your plan helps set up the path to success, remember agile investors tend to triumph.
Those who can pivot away from their plans when needed and without too much stress can take advantage of unexpected opportunity.
Similarly, those who are flexible can find solutions to problems that might stifle others.
Let’s assume your holding has been vacant for far too long. Perhaps rents have softened and you need to lower your price? If so, do it. Don’t falter.
Have you had a bad run of tenants over the past two years? Your property manager might not be doing their job, so be prepared to change.
Be prepared to cut, run and shift so you come out stronger than ever.
The cost of owning and maintaining and investment isn’t linear. You will be flush with cash one month, and running on empty the next.
The key to survival is buffers. Make sure you carry a buffer of available funds in an offset facility so you can cope with the whims of cash flow. This means putting a little away every cycle to cover the unexpected.
Being able to draw against this if an emergency arises is a godsend. Say it’s summer and the hot water system breaks down the same week as the air conditioner. You can safely draw on the buffer, knowing it will replenish itself as the year continues to progress, because you’ve allowed for this in your annual cash flow calculations.
Like most things in property investing, the long-term helps smooth out the bumps.
Dealing with unexpected forces requires a ‘Zoom-in, zoom-out, zoom-in’ process.
Let’s say you’ve purchased a property and prepared your maintenance budgets for the coming year. All is going swimmingly until six-months in when an undetectable tree root blocks a drainage point and the subsequent flood requires a major spend.
What are you going to do? This year’s planned-for expenses are about to be soaked up in one repair!
Your first move will be to ‘zoom in’ and recognise the problem. The key is not to become overwhelmed at this point – although it’s not always easy. Your initial reaction might be to sell up and get the hell out! Suddenly this one small issue gives too much credit to the naysayers, and it’s at this point where many first-time investors give up on their property dreams.
My advice here is to understand your reaction and responses are normal, but can be overcome. Just simply ‘recognise’ the problem at this stage and don’t react too fast.
The next step is less intuitive. I recommend you now ‘zoom out’. Revisit your long-term goals and strategy. Check where you are in the journey and think about how this property fits into your plan. In the 10 to 15-year property cycle, isn’t this extra cost just a minor setback on a long and winding road? Won’t this problem be temporary? Isn’t your strategic purchase of this property for its capital gain and future development potential? Isn’t it worth holding on to?
This is where we ‘zoom in’ again and anlyse your options. Think about the extent of the repair realistically. Will your financial buffers carry you through? Do you need some strategic help from your advisor on formulating a way to cover this cost in the short term, so you can still enjoy the long-term payoff?
I’ve found that most hurdles can be cleared once you get into the habit of recognising an issue (zoom in), revisiting your goals (zoom out) and analysing your options (zoom in).
If you want to avoid the unexpected… then expect it!
Many investors fail to regularly reassess their portfolio and financial position. Keeping abreast of rental return, borrowing level, incomes, outgoing and expected long term asset performance are key.
Don’t be lazy. By keeping abreast of these elements, you won’t get caught off guard and will be more likely to stay the course.
Finally – revisit your investor mindset. Remember, you are among a rare number of Australian who are planning for a comfortable future where you can enjoy the spoils of your hard work. It’s a marathon effort and there will be trying times. Just take a moment to breath, re-assess and move forward.
The good news is that, in my experience, most investors can acquire the right frame of mind to clear the challenges. It just takes effort, patience and some support from those around you.
Don’t be at the thin end of the statistics. Join the ranks of those who ran the full real estate investment race … and won.