Self Assess For Success
Working out the best investment strategy to suit your overall investment goals can be a daunting endeavour, but introspective, self-assessment will help you get there.
It’s worth stressing two things from the outset:
1. This is a balancing act - There are no absolute external guidelines to measure yourself against. Rather, you’re looking to weigh up what you’re trying to achieve, your current capacity and your personal traits to find an optimum strategy.
2. This is a repeatable process - It may be an intimidating task the first time you carry out this type of self-assessment, but it will soon become a valuable skill to be deployed time and again across projects. Everyone is different and the following core set of qualities will of course not cover every type of person out there, but it’s a fairly good assessment of the usual qualities to consider in the context of property purchase.
Your tolerance of risk is a personal and contentious factor. There are proponents on both sides of the fence claiming their strategy is best. But really, the only person that can answer the question is you. To understand where your tolerance possibly falls, the following scenarios may assist;
Risk Averse: You gravitate towards the promise of slow, steady, long-term returns and lean towards scarcity-driven markets such as ‘blue-chip’ suburbs with excellent access to the beach or CBD.
Risk Taker: Willing to take a long shot on a mining town or rural area with significant potential for strong capital growth or excited at the prospect of investing in a tourist hotspot with excellent short-term growth prospects - albeit a sizeable risk that it will end in an all-or-nothing outcome. Consider the question carefully regarding your own temperament and available resources, as it will be fundamental to your eventual choice of strategy.
Your age will influence the decisions you make and influence the choice of strategy. Quite simply, you will be looking to either boost short-term income, possibly to provide for a growing family or looking to use a property to drive lifestyle change. If nearing retirement, you are probably more interested in what will be left behind for your children and grandchildren for that matter. Any age bracket influences the decisions we make.
Being currently hamstrung by a relatively low income may force the individual to focus on improving income via strategic cashflow yielding investments before launching into more sophisticated renovate for profit or development strategies. A high level of revenue may see the individual on the hunt for effective mechanisms to offset income tax and an emphasis on strategies based on scarcity and reduced risk.
Current Cash Reserves
Obviously, the larger amount of cash in reserve enables one to do more such as renovating on a larger ticket property for instance. On the other hand, if the reserves are relatively low, the strategy might be to consider a series of small strategic purchases to generate capital growth.
Ideal Time Horizon
Ideal timelines vary substantially from one investor to the next. Some will be looking for upfront growth - only interested in a 3-5 year timeline. Others may be exclusively interested in locking down long-term cash flow capable of generating results for decades. Being clear on exactly when to realise the profit on each investment and what level of risk can be tolerated is a key constituent in assessing your overall approach. Consider how much time you have free to dedicate towards search and acquisition phases, or due diligence and ongoing maintenance or renovation. Remember, the time to consider these issues is well before you make a purchase.
Own Experience and Skills
Lastly, you’ll need to honestly assess the experience, skills and contacts that you can leverage over the course of your investment. This requires a level of frankness with yourself - something challenging even for experienced investors. If for example, you’re eyeing up a property in the Northern Queensland tourist district, but you’ve never visited there and are working full time, are you really in a position to proceed and fully commit to the project?
If you’re considering a renovation project for the first time, are you certain you can muster the resources to tackle it properly? Honest self-appraisal is the key to working out whether your skillset is really synched to the strategy you’re considering.
As you can see, many of our self-assessment factors interact strongly with one another and it’s not always straightforward to see the wood for the trees when you’re trying to tackle them.
Don’t be afraid to seek expert, impartial, external feedback as you walk through the list – particularly when it comes to the last item.