It’s human nature to become set in your ways. We find our familiar groove and, once settled, are happy to coast along. But this is a false sense of security because the ‘safe zone’ is actually dangerous territory.
If we’ve learned anything from 2020, it’s that expecting the status quo to be maintained can and will lead to disappointment, and sometimes disaster. This also applies to property investing. Life is in a constant state of flux, so it’s important to learn to think ahead of what’s happening now and be ready to change strategy as required.
Here are some of thoughts on the importance of maintaining a long-term mindset – particularly for first- time investors.
How we change
Young, first-time investors can be a great example on how important forward thinking is.
As an early starter, you probably bought your first asset in your 20s, during a great period of your life. Happily discovering your place in the world, you could really enjoy the fun and opportunity it offered. You explored travel options (in non-pandemic years of course), made career decisions, dated potential partners and enjoyed your independence.
There were also fewer responsibilities, and you may have had a bulletproof mindset. You still had all the time in the world to make – and recover from – mistakes.
So, you might’ve speculated a little when considering investments. However, probably not too much, because you wouldn’t have access to a large amount of borrowed funds. Plus, if things went sour, what’s the worst that could’ve happen?
But to be a successful investor, you must move beyond this mindset. You shouldn’t continue to invest like a 20-year-old into your 30s, 40s and beyond.
The dangers of remaining an immature investor
There are two principle reasons why you must adopt the mindset of a lifetime investor – even if you’re purchasing your very first asset.
Incorrect Timing
Firstly, investing in the wrong asset at the wrong time can produce damaging financial outcomes. For example, say you acquire a property with high capital growth potential as a 20-year-old, but have a low income. This is likely to cause strife, because high capital growth potential is often traded off by low rental return. Ultimately, this means you will need to chip in more of your own income to service the loan, maintain the property and pay fees and charges.
What’s the worst that can happen? Well, if you’re on a low income, and can’t take care of these commitments, the financier has the right to reposes the home to sell in order to pay back your debt.
In short, it’s useless to hold an asset with long-term growth potential if you can’t afford to retain it over several property price cycles.
Opportunity Cost
Secondly, there’s a huge opportunity cost if you invest in an asset in a lousy location – particularly at a young age. While you will probably still see it rise in value over your lifetime, a better, more thoroughly researched investment could have brought you significant additional earnings. We’re talking the potential for hundreds of thousands of extra dollars difference between your investment and a blue-chip property. Don’t ruin your opportunity of time in the market. Youth gives you the chance to make some serious dough.
Here’s a quick example of opportunity cost:
Let’s say you don’t do any research and purchase a $500,000 home in a low-growth suburb delivering average capital growth of 2% per annum. In 15 years, after compounded gains, your asset will be worth around $673,000. Not too bad for just holding and waiting.
However, if you take that same $500,000 and thoughtfully place it in an area that delivers a modest 4% a year. Over the same 15-year period, your property will grow in value to $900,500. That’s a big difference!
If you find a great location with growth of 6% per year, your asset will grow to a whopping $1.2 million.
Clearly, a misguided decision early in your investment journey will have expensive, long-term impacts.
Keeping your eye on the long game
So how do you maintain the outlook of a long-term investor and maximise your investment outcomes?
Plan Your Strategy
First, you must plot your strategy. Start with the end in sight; determine when you want to retire and with how much money.
You’ll also need to plot your expected life journey. Factor in important elements such as marriage, kids, career changes, promotions and travel. Flagging these changes well in advance will allow you to buffer in the lean times and boost profit when you’re flush with cash.
Be Ready for Change
Next, expect to pivot. Having a long-term mindset doesn’t mean becoming stuck in your ways. You have to recognise when the path is changing and make decisions based on the best information available.
Get Professional Advice
This is where sage, experienced advice from an experienced property investment advisor comes in. They can help lay out a scheme to secure a wealthy retirement and help guide you through the challenges that will arise throughout your investment journey.
Always review any property location research and investment analysis data, with a professional, QPIA (PIPA Member) qualified & accredited ASPIRE Property Advisor Network Advisor.
Never rely on glossy sales brochures or property marketing information, ensuring a property is right for your strategy. Property Investing is about BUYING a property that matches your goals and aligns with your investment strategy. Don’t ever be SOLD an investment.
Email hello@prospaproperty.com.au or call us on 1300 660 335 to chat to one of our Qualified Property Investment Advisors.
