There is a growing trend of property gurus who paints a wonderful picture of how easy property investing can be. They tell these stories of Tom, Dick and Harry (sorry, Tom, Dick and Harry) who joined their classes with no money and no knowledge, being an overnight success in property investing.
The truth about property investing cannot be any further.
Property investing is really beyond the simple transaction between buyer and seller. In fact, it is a skillset acquired and honed over years of continuous education and experience. To make sense of the dynamic property market and to identify potential properties that have good investment returns, higher than inflation.
I believe that 90% of the properties currently on the market is not worthy of your investment portfolio. If you consider the number of properties on auction and the growing trend of people defaulting on their loans, you will quickly appreciate how true this may be.
For me to be able to tell you this opinion, it took me years of doing my own research, talking to experienced property investors and really getting hands-on experience about the property industry. Interestingly, my journey has only just begun.
To put it simply, I believe there are 3 stages to the life of a property investor. Starting from the amateur, going all the way into being a veteran.
Here is my journey and where I wish to be 5 years from now.
Stage 1: The Keen Amateur
Do you remember waking up one morning, suddenly having mastered a skill without putting in any effort? If your answer to that question is Si, then you ought to be more truthful to yourself.
I have never in my life wake up one morning and all of a sudden master a skill. The same can be said for my journey as a property investor. I too started as a keen amateur where I scrambled, scoured the internet, the library, everywhere and anywhere looking for information to help me understand the property industry.
This is the time where I spent 3 long years learning book knowledge about property investing,
- Property investing strategies
There are so many property investing strategies, be it the buy and hold strategy or the flipping methodology.
There is so much information on the internet but it takes time to truly understand which investing strategy fits you as an individual. Hence, the time commitment you need in building a suitable property portfolio.
Personally, I think of myself as a buy and hold investor because I like to collect passive income over the long term while patiently waiting for capital appreciation.
I would recommend amateur investors to understand the different property investing strategies available in your market. Be it flipping, buy-hold, BRRRR, or wholesaling. Beyond that, you should identify for yourself which strategy(ies) suits you and your commitment. - Managing finances
One thing I wished the education institution would spend more effort in is teaching young generation to properly manage their finances. I was fortunate enough to have parents who imparted into me the idea of good financial management.
This then led me down the deep rabit hole of FIRE which I hope to achieve through property investing. Like it or not, the reality about property investing is that it is high upfront capital and if you are not careful, you can really quickly burn your hands.
Understanding the cash flow in managing properties gave me a good grasp of how the rich got richer through the property market.
Personally, I recommend you to understand the many financial terms related to the property industry. To help you get started, you should understand terms such as down payment, rental yield, return on investment, interest rate and financing tools – term loans and flexi-loans. - Underwriting potential property purchases
As I mentioned earlier, not all property on the market is worth investing. In fact, 90% of them are horrible investment which you should avoid at all cost.
Learning to underwrite any potential property investment is a skill that I picked up rather late in my journey. Nonetheless, it helped me identify hidden potentials many investors missed.
To help you get started, underwriting a property involves looking at a potential investment, do a quick analysis of the rental to price ratio and to compare it against the benchmark for the location. Other than that, you should also look at factors such as vacancy rate, cash flow forecasting and potential capital gain.
Getting started can be difficult. The internet is a very vast place with information everywhere. I admit that I was once paralyzed with too much information and that limited my growth and action.
If I am to advise the young me, these are the resources I recommend,
- Get yourself a mentor
I am not referring to the property gurus you see on the internet or those who spent millions in advertising just to reach your social media. When I say mentor, I meant someone who you know is truly experienced in property investing and have made a decent living through his investment portfolio.
For me, I was in this adventure of self-discovery for about 2 years before I first met my mentor. He gave me a lot of insights into property investing and ideas on how one should analyse the market, the location and finally deciding if a property is worth investing.
The journey I had and is still having with this mentor is invaluable and have accelerated my learning curve by years. All those book information and knowledge I gained, I brought it to him for discussion to further distill and craft it into my own tool.
I would caution discernment in learning from the right individual. Every one can have their own opinion but opinions are merely opinions. Once you can appreciate that fact, it is a lot easier to see the property industry for what it is. - Read from authors who made a living through property investing
If you cannot find yourself a good mentor, then the next best thing is to learn from property investors who penned their knowledge and their thought process. While I am not saying you should avoid all mistakes in property investing, would it not be better to learn from the mistakes from others before us?
To credit a few authors I learn from and still am today, are people like Brandon Turner, Joshua Dorkin and David Mason Greene, who spent a lifetime building up their property portfolio and have been kind enough to share their knowledge. - The internet
There are so may resources out there in the internet world. Even this platform, BiggerEstates (B.E), can be considered one of those many resources.
However, do practise discernment when going through the internet. Not everything on the internet is helpful and sometimes, it can be detrimental. - Join a community for property investors
I rank this last because personally, I find it difficult to gain any substantial information and context to a discussion. The issue I have with forums is how quickly a topic can be railed off topic and how trolls can be so effective in muddying genuine information.
However, the good thing about online communities is that it encourages discussion and it is these debates which helped me understand both sides of the argument. Having understood both perspective to a situation, I can better development my own stance on the matter, using it for my own benefit.
Stage 2: Building Your Own System
Some would call this phase the builder phase. Currently, I perceive myself as being a builder, building my own system around analyzing properties, collecting them and managing them as a part-time business.
The builder stage is where amateur investors put their knowledge into practice and begin to have a few properties in their portfolios. I myself am learning more along every step of the way and experiencing unexpected setbacks not commonly shared by authors or the internet.
I believe this stage is crucial to any property investor who wishes to grow their portfolio to the next level. Unfortunately, most investors never get past their first property. Due to reasons such as buying into the wrong location or stretching their finances too thin, there are many investors who are unable to continue growing their portfolios.
That is why, at this stage, I focused more on growing my network of contacts,
- Property agents
You might not realise it yet but good property agents can be crucial in getting your property rented out quickly. This is true especially when you are just starting out with the first property and clueless on getting things moving.
On the contrary, I know of veteran investors who engaged property agents in almost all of their dealings because it saves them time to resolve other issues.
Selecting a good property agent does not need to be difficult. If you do not know where to start, this guide on engaging property agents will get you started. - Mortgage loan bankers
Bankers are another essential component in your group of mastermind. They are the best people to advise you on the best financinng tools to your situation. At the same time, they are the people who helps you fight your case during the loan application.
Personally, I know at least 1 good banker in each prominent banks. If bank A cannot offer me a financing tool to my requirement, I will take my business to bank B. Building good relationship with good bankers really improves your chance of getting a good loan offer. - Convayencing lawyers
When you buy a property, a legal agreement is created between the seller and the buyer. The terms and conditions stipulated within the legal document will affect both parties. A good conveyancing lawyer should be able to guide you through the complex legal document, explaining the clauses and helping you understand what is going on. - Repair and maintenance providers
It is natural to do repair and maintenance on your property. In fact, there should be a budget and checklist on annual maintenance if you want to retain tenants for the long term.
Hence, it is important to have a few service providers who can do a good job while charging a reasonable fee.
Building a curated system for your investment portfolio is only the beginning. It will take time and effort to see this stage through but it is worthwhile for the long run.
Think of property investing as a business. A systematic business works best when it is automated and profitable. Without a system, it is really easy for opportunities and expenses to fall through the crack, causing the business to be unsustainable for the long run.
So I say to you, “think long term, build system”.
Stage 3: The Veteran – Having a Niche
Not many people will reach this stage because it takes years of experience and hard work to build such a portfolio. To me, a veteran is someone who has accumulated years of knowledge and experience, putting them into good practice to build their significant investment portfolio.
From my discussions with my mentor, I observe a clear thought process of what works and does not work in his playbook. For example, the importance of location is not limited to the value but is also extended to the crowd it attracts. Ultimately, it is not quite the location that matters but the people who stay there, giving value to the location.
Besides that, it is only natural for veteran investors to focus their investment in a niche they are familiar with. It can be a location, a property class or a price range. I observed in most cases, a common form of niche is location. It is so much easier and effective to manage multiple properties in 1 locality than it is to manage a few properties in multiple neighbourhoods.
On top of that, I also observed veteran investors consolidating their portfolios and reinvesting the excess funds in commercial properties. Commercial properties can be a good alternative to residential properties but it requires a strong cash reserve to weather through tough times.
Final Word
This is how I perceive the life of a property investor – 3 stages. We all begin our journey as a learner, absorbing information and learning from veteran investors. As we progress, we go through the different challenges and build systems that work exceptionally well for us.
Unfortunately, not many investors get through the hurdle of “The first property”. If you fall into the trap of listening to opinions, it can be really easy to make a snap decision that puts a halt to your journey.
If I have anything else to say, I’d say be very careful of who you seek your advice from. Is the property agent telling you the full picture? Is the veteran investor you listen to, real and not a pretender? It is very easy to fabricate information in this age of technology but if you practice discernment, you have a lower risk of buying into the lies and self-glorifying brags.
Until then, take care.
