Property investment isn’t a sprint; it’s a marathon. And like any long journey, it’s vital to know the property investing stages that lie ahead. You may be dipping your toes into the real estate market. Or already have a property or two under your belt. But understanding these stages is crucial for achieving long-term success.
Let’s explore the three stages of property investing that can lead you to financial growth in real estate.
Stage 1: Learning What NOT to Do
In the realm of property investing, the first stage is all about learning and discovery. Think of it as your education in the world of real estate. During this phase, you’ll likely find yourself doing some research. You will be reading blogs, watching videos, and listening to podcasts.
Here’s the catch: Many investors get stuck at this stage. This is because they often try various investment strategies without a clear plan. They might not see much financial progress, even after years of investing. This initial stage spans five to ten years. Some individuals remain stuck here , either due to discouragement or financial setbacks.
So, what’s the key takeaway from this stage?
Well, it’s essential to realise when something isn’t working and to be willing to pivot. Many investors at this stage aren’t in much better financial shape than they were in the beginning. This is due to experimentation which leads to lack of a clear strategy.
Stage 2: Finding a Winning Formula
In the second stage, a select group of investors advances by evaluating their past experiences. They’ve learned from their mistakes and successes, forming a foundation of wisdom. These investors also understand the value of having a team of independent professionals to help them along the way.
The critical shift here is moving away from listening to every opinion on the internet. They do not get swayed by media noise. Instead, they focus on creating a strategic property plan. And this plan involves three key components:
- A Proven System: Successful investors understand that not all properties are equal. They focus on selecting investment-grade properties. This represent less than 4% of the market. These properties offer long-term potential for capital growth.
- A Finance Plan: To build a real estate portfolio, you need a financial plan. This plan needs to go beyond your first property buy. It should encompass strategies for acquiring subsequent properties.
- A Structure and Ownership Plan: Protecting your assets and planning for future generations is crucial. Investors at this stage often consider how to pass on their wealth effectively.
In this phase, investors no longer chase high cash flow but prioritize buying well-located investment-grade properties to build their asset base over many property cycles. While capital growth is their primary focus, they understand the importance of cash flow management to navigate market ups and downs.
Stage 3: Building a “Cash Machine”
The third stage of property investing is where only a tiny percentage of investors reach. These are the strategic investors who have amassed a substantial asset base over time. At this point, they gradually lower their loan-to-value ratio, transforming their property portfolio into a “cash machine.”
In this stage, investors not only recognize that they have a winning formula, but they also understand how to use their resources efficiently and safely to achieve their financial goals. They have greater control over their financial destiny and are less affected by market fluctuations.
So, where do you stand on your investment journey?
Statistics reveal that approximately 90% of investors find themselves in Stage 1. Many remain here until they become aware enough to assess their investment performance or seek objective advice. Stage 2 investors make up most of the remaining 10%, heading in the right direction but with room for improvement. Moving up to Stage 3, where resources are strategically allocated, remains a challenge for many.
Why Don’t Most Investors Move Beyond Stage 1?
One significant reason is a lack of awareness. Many investors may not even realize they are stuck in Stage 1. They might be what we call “financially illiterate,” subject to the cyclical ups and downs of the property market.
Investors in Stage 2 are more savvy but can still be influenced by market movements. But, the small group that reaches Stage 3 is financially fluent. They understand the intricacies of finance, taxes, and property markets, and they’ve built substantial asset bases and cash machines that offer them financial choices.
Navigating the Current Market Opportunity
Now that we’ve explored the three stages of property investing, let’s consider the current market landscape. We find ourselves at the beginning of a new property cycle, a rare occurrence. While trying to time the market perfectly is challenging, it’s worth noting that the market already saw a bottom in early 2023.
Looking ahead, we anticipate that demand will exceed supply for some time. Record levels of immigration, coupled with a shortage of properties, are driving this trend. The cost of construction is also on the rise due to supply chain issues and labour shortages.
As the market stabilises, consumer sentiment will rebound. Greed, often referred to as FOMO (Fear of Missing Out), will surpass fear (FOBE – Fear of Buying Early), as it typically does in the property cycle. Strategic investors will seize opportunities over the next couple of years, maximising their gains while safeguarding against potential downturns.
What Should You Do in This Phase of the Property Cycle?
If you’re like many property investors, you might be wondering about your next steps. Should you buy, sell, or wait? In times like these, having a trusted advisor is invaluable. At Akhlinder Dani – Property Investment Advisor, we take a holistic approach to your wealth creation, helping you make informed decisions.
Our services include:
- Strategic Property Advice: Let us create a Strategic Property Plan tailored to you and your family’s needs. Planning brings the future into the present, allowing you to take action now.
- Buyer’s Agency: As trusted buyers’ agents with involvement in over $4 billion worth of transactions, we can help you find your next home or an investment-grade property.
- Wealth Advisory: Our strategic financial planning and wealth advice can help you navigate the intricacies of property investment.
- Property Management: Our stress-free property management services maximise your property returns, with below-average vacancy rates and faster lease times