This may surprise you, but I haven't always been a property developer. In fact, I started out as a property investor. I did that for 20 years, starting when I was 18.
I even managed to achieve financial freedom as a property investor - until I got divorced, that is. And that's when I saw the light and became a property developer.
If you've been a property investor for a while, you might be surprised to find that your property investments are holding you back. Let me explain how.
Now, I'm not suggesting that having property investments is a bad thing - far from it! Unless of course you're negatively geared and the shortfall is eating you alive.
Let's begin with the two main reasons for investing in property.
1. Capital Growth
In Australia, this is a very common reason for investing in property. You buy something, let it sit for however many years, and at the end of that it will have gone up in value. Very straightforward.
There's a lot to like about this strategy because it's pretty simple. Often someone ends up with their first property investment when they move house. They buy a new one and keep the old one as an investment. Easy.
Maybe you simply decide to buy an investment property. You make a small amount of effort to find something suitable, then let the market do the rest of the work for capital growth.
Nothing wrong with this strategy if you buy the right house in the right area at the right time. And plenty of people do.
The problem is that a lot of people don't. Project marketers are notorious with their methods of flying people up to SE Queensland, having properties to view, brokers and accountants lined up, and before they have time to take a breath, the client has bought a property.
It doesn't even have to be that sophisticated. Your accountant says you're paying too much tax and recommends property as a way to reduce your tax bill.
So you buy yourself a negatively geared property, which might reduce your tax, but also leaves you in a situation where you have to come up with the shortfall every month. Your vision of financial freedom suddenly fades as you realise you have to stay in your job to feed your investment portfolio.
Which leads into the other reason for buying an investment property.
2. Cashflow
Achieving financial freedom involves replacing your job income. So cashflow is definitely a good reason for buying an investment property. I love passive income from property!
The problem here is that once you buy a cashflow property, your capital is tied up. That makes it harder to buy another one, and generally you'll need more than one to leave your job behind.
Over time, with any luck, the property will increase in value and you'll then be able to buy another with the extra equity, but you have no control over how long that's going to take.
Other Reasons
There are 2 other main reasons why people own property - lifestyle and development.
Lifestyle is all about where you live, commonly called your principal place of residence (PPR). This decision has nothing to do with investing. It's all about being near the right school for your kids, or living in an area you like.
Development, on the other hand, means choosing a property where you can add value and accelerate your financial freedom journey. And of course that's the type of property I love!
The main benefit of property development is that it allows you to acquire your investment portfolio at a wholesale rate. This means you can accelerate your financial freedom journey.
If you buy an established property, like most investors do, then you're buying retail. The profit has already gone to whoever developed the property. So you're going to be waiting longer to build up some equity in the property.
I have plenty of content out there talking about how to use property development to accelerate your investing journey, but I'm not going to go into that here.
What I do want to do is talk about what to do if you've already started on the property investment path and have begun a property portfolio.
The mistake most investors make is they buy a property, rent it out and then get on with their life. They forget about it, apart from paying the mortgage and getting rent statements. Down the track they buy another one and do the same thing.
If you're serious about financial freedom, then at some point you have to stop collecting properties, sell some down, pay off the debt on the rest and live off the income. That's the 20-30 year strategy for most investors. And very few make it that far.
Many people reach a point where maybe they should sell some properties, but then their accountant works out how much tax they're going to have to pay as a result, and they don't want to pay it.
So although their aim is to eventually sell, they just keep on collecting properties, or they just stop in their tracks. Neither of those options is great for financial freedom!
There's a fundamental problem here, because they've asked the wrong question. It's not a case of SHOULD you sell - but WHEN. Confused? Let me explain.
My strategy is that every 2-3 months I review my portfolio. Now, nobody's looking over your shoulder and going to give you a rap over the knuckles if you do it a little less often, but the point is to do it regularly.
You need to look at each property in your portfolio and ask yourself three questions.
1. Is this property performing as intended? Going back to earlier in the article, I talked about having properties for capital gains or cashflow. Look at the reason you purchased the property and ask yourself if it's delivering the result you want.
2. Will it keep performing as intended? This is a little harder to answer and may require you to do some research on market conditions.
3. Knowing what I know now, can I do better? This is where the rubber hits the road. For this question, you're essentially assessing the opportunity cost of holding the property. If you could sell now and release a chunk of equity, could you do something with that money which would give you better results than the current property is achieving?
In the end, it's not about owning more properties. The quickest way to financial freedom is to own properties outright. You can achieve this by building a big portfolio, then selling a chunk of it to pay out the debt on the remaining properties.
But if you want to do it faster, then property developing is the best choice because of your ability to scale what you do and acquire property at a wholesale rate.
If you've built an investment property portfolio, then congratulations. You've achieved more than a lot of people ever will. But take the time to stop and decide whether your property investments are holding you back from achieving financial freedom a lot quicker.
I even managed to achieve financial freedom as a property investor - until I got divorced, that is. And that's when I saw the light and became a property developer.
If you've been a property investor for a while, you might be surprised to find that your property investments are holding you back. Let me explain how.
Now, I'm not suggesting that having property investments is a bad thing - far from it! Unless of course you're negatively geared and the shortfall is eating you alive.
Let's begin with the two main reasons for investing in property.
1. Capital Growth
In Australia, this is a very common reason for investing in property. You buy something, let it sit for however many years, and at the end of that it will have gone up in value. Very straightforward.
There's a lot to like about this strategy because it's pretty simple. Often someone ends up with their first property investment when they move house. They buy a new one and keep the old one as an investment. Easy.Maybe you simply decide to buy an investment property. You make a small amount of effort to find something suitable, then let the market do the rest of the work for capital growth.
Nothing wrong with this strategy if you buy the right house in the right area at the right time. And plenty of people do.
The problem is that a lot of people don't. Project marketers are notorious with their methods of flying people up to SE Queensland, having properties to view, brokers and accountants lined up, and before they have time to take a breath, the client has bought a property.
It doesn't even have to be that sophisticated. Your accountant says you're paying too much tax and recommends property as a way to reduce your tax bill.
So you buy yourself a negatively geared property, which might reduce your tax, but also leaves you in a situation where you have to come up with the shortfall every month. Your vision of financial freedom suddenly fades as you realise you have to stay in your job to feed your investment portfolio.
Which leads into the other reason for buying an investment property.
2. CashflowAchieving financial freedom involves replacing your job income. So cashflow is definitely a good reason for buying an investment property. I love passive income from property!
The problem here is that once you buy a cashflow property, your capital is tied up. That makes it harder to buy another one, and generally you'll need more than one to leave your job behind.
Over time, with any luck, the property will increase in value and you'll then be able to buy another with the extra equity, but you have no control over how long that's going to take.
Other Reasons
There are 2 other main reasons why people own property - lifestyle and development.
Lifestyle is all about where you live, commonly called your principal place of residence (PPR). This decision has nothing to do with investing. It's all about being near the right school for your kids, or living in an area you like.
Development, on the other hand, means choosing a property where you can add value and accelerate your financial freedom journey. And of course that's the type of property I love!
The main benefit of property development is that it allows you to acquire your investment portfolio at a wholesale rate. This means you can accelerate your financial freedom journey.
If you buy an established property, like most investors do, then you're buying retail. The profit has already gone to whoever developed the property. So you're going to be waiting longer to build up some equity in the property.
I have plenty of content out there talking about how to use property development to accelerate your investing journey, but I'm not going to go into that here.
What I do want to do is talk about what to do if you've already started on the property investment path and have begun a property portfolio.
The mistake most investors make is they buy a property, rent it out and then get on with their life. They forget about it, apart from paying the mortgage and getting rent statements. Down the track they buy another one and do the same thing.
If you're serious about financial freedom, then at some point you have to stop collecting properties, sell some down, pay off the debt on the rest and live off the income. That's the 20-30 year strategy for most investors. And very few make it that far.
Many people reach a point where maybe they should sell some properties, but then their accountant works out how much tax they're going to have to pay as a result, and they don't want to pay it.
So although their aim is to eventually sell, they just keep on collecting properties, or they just stop in their tracks. Neither of those options is great for financial freedom!
There's a fundamental problem here, because they've asked the wrong question. It's not a case of SHOULD you sell - but WHEN. Confused? Let me explain.
My strategy is that every 2-3 months I review my portfolio. Now, nobody's looking over your shoulder and going to give you a rap over the knuckles if you do it a little less often, but the point is to do it regularly.
You need to look at each property in your portfolio and ask yourself three questions.1. Is this property performing as intended? Going back to earlier in the article, I talked about having properties for capital gains or cashflow. Look at the reason you purchased the property and ask yourself if it's delivering the result you want.
2. Will it keep performing as intended? This is a little harder to answer and may require you to do some research on market conditions.
3. Knowing what I know now, can I do better? This is where the rubber hits the road. For this question, you're essentially assessing the opportunity cost of holding the property. If you could sell now and release a chunk of equity, could you do something with that money which would give you better results than the current property is achieving?
In the end, it's not about owning more properties. The quickest way to financial freedom is to own properties outright. You can achieve this by building a big portfolio, then selling a chunk of it to pay out the debt on the remaining properties.
But if you want to do it faster, then property developing is the best choice because of your ability to scale what you do and acquire property at a wholesale rate.
If you've built an investment property portfolio, then congratulations. You've achieved more than a lot of people ever will. But take the time to stop and decide whether your property investments are holding you back from achieving financial freedom a lot quicker.
