When I went into my very first deal I ended up with a peak debt of $4.2 million. That’s a lot of money for deal number one and it wasn’t easy to secure the funds. I needed a money partner and I had a lot of limiting beliefs that basically meant I didn’t think anyone would lend me the money. I eventually swallowed my pride and asked my sister.
She came in as a 10% shareholder.
So I had 90% of the $4.2 million debt and I was very comfortable with my level of debt.
But at 10% she was very uncomfortable.
It was the same deal, same risk, it was going to make the same money. But the two of us had very different points of view – she couldn’t sleep at night. So the quicker I could get her out of the deal, the better.
The point is, everyone has their own money personality and their own risk profile and you need to work out yours before you jump into development.
We all have different money personalities, and with that comes different money rules.
Your job is to figure out what is important to you. Every single one of us has a different starting point. We all have different risk profiles: some of us want to go slow, some want to go fast. Some want to go it alone, some want to team up with others, or they have no choice but to team up with others.
Some people have no money.
And for those that do have money, there are some important questions to ask:
1. How much are you willing to invest?
2. And how much can you afford to lose?
You may want to put some aside for a nest egg, so it’s safe, or you may want to go all in.
Just because you have money doesn’t mean you want to spend it. It’s about trying to find a healthy level of risk and challenge to move yourself forward towards your goals.
3. How much debt are you okay with?
Debt is leverage. Cash is what you put in to start with, but debt is the leverage to amplify that.
Infamous businessman Alan Bond had a phrase “The more you owe, the richer you are.” But you need a certain intestinal fortitude to take on a project that comes with big debt.
4. How long can you wait for pay day?
Property development is one of those things where money goes out of your pocket every day and the only day that money goes back in is the day you sell the finished product.
If you can’t take the negative cashflow for that period of time, then you might need to take a smaller deal with a shorter timeframe.
In the early days you probably want to be doing deals that pay back really quickly.
Even if you have intentions of doing very large projects that might take anywhere up to three years to run, your first project might be getting an approval to do the development, never actually do the construction, and flick it straight away to get a pay day.
This means you can start to build the kitty straight away, start to build the confidence straight away, start to build the evidence of success straight away. You’re still executing on the bigger plan but you’re cashing in early to build your muscle.
When you’re trying to build the belief in yourself that you can actually do this, three years is a long time to wait to get that proof, so find ways to bring that proof forward.
5. What can you realistically achieve?
A lot of people have delusions of grandeur as to what they can achieve. They might have seen some get rich quick scheme and they say “Yeah, I can do that”, but they don’t actually ask themselves the question of whether they can wait three years for a payday.
And what I tend to see a lot is people overestimating what they can do in a very, very short period of time. They're sold on the delusion that you can become a millionaire overnight through this property development game.
Whereas the reality is you’ve got to learn the skills, you’ve got to put the runs on the board, you’ve got to put the effort in, you’ve got to find a deal and then you've got to run the deal. And only at the end of the deal, when you sell it, do you actually get paid. And so that takes time.
Bill Gates has famously said “Most people overestimate what they can achieve in a year and underestimate what they can achieve in 10 years”. That’s why with my Property Development Formula we do a five-year plan. It gives you enough time to set and reach attainable goals.
So before you start looking at development strategies, before you start talking to agents and accountants, brokers and builders, take a moment to figure out your money personality.
The answers you come up with will go a long way to helping you choose the right development strategy and move forward with sustained momentum.
She came in as a 10% shareholder.
So I had 90% of the $4.2 million debt and I was very comfortable with my level of debt.
But at 10% she was very uncomfortable.
It was the same deal, same risk, it was going to make the same money. But the two of us had very different points of view – she couldn’t sleep at night. So the quicker I could get her out of the deal, the better.
The point is, everyone has their own money personality and their own risk profile and you need to work out yours before you jump into development.
We all have different money personalities, and with that comes different money rules.
Your job is to figure out what is important to you. Every single one of us has a different starting point. We all have different risk profiles: some of us want to go slow, some want to go fast. Some want to go it alone, some want to team up with others, or they have no choice but to team up with others.
Some people have no money.
And for those that do have money, there are some important questions to ask:
1. How much are you willing to invest?
2. And how much can you afford to lose?
You may want to put some aside for a nest egg, so it’s safe, or you may want to go all in.
Just because you have money doesn’t mean you want to spend it. It’s about trying to find a healthy level of risk and challenge to move yourself forward towards your goals.
3. How much debt are you okay with?
Debt is leverage. Cash is what you put in to start with, but debt is the leverage to amplify that.
Infamous businessman Alan Bond had a phrase “The more you owe, the richer you are.” But you need a certain intestinal fortitude to take on a project that comes with big debt.
4. How long can you wait for pay day?
Property development is one of those things where money goes out of your pocket every day and the only day that money goes back in is the day you sell the finished product.
If you can’t take the negative cashflow for that period of time, then you might need to take a smaller deal with a shorter timeframe.
In the early days you probably want to be doing deals that pay back really quickly.
Even if you have intentions of doing very large projects that might take anywhere up to three years to run, your first project might be getting an approval to do the development, never actually do the construction, and flick it straight away to get a pay day.
This means you can start to build the kitty straight away, start to build the confidence straight away, start to build the evidence of success straight away. You’re still executing on the bigger plan but you’re cashing in early to build your muscle.
When you’re trying to build the belief in yourself that you can actually do this, three years is a long time to wait to get that proof, so find ways to bring that proof forward.
5. What can you realistically achieve?
A lot of people have delusions of grandeur as to what they can achieve. They might have seen some get rich quick scheme and they say “Yeah, I can do that”, but they don’t actually ask themselves the question of whether they can wait three years for a payday.
And what I tend to see a lot is people overestimating what they can do in a very, very short period of time. They're sold on the delusion that you can become a millionaire overnight through this property development game.Whereas the reality is you’ve got to learn the skills, you’ve got to put the runs on the board, you’ve got to put the effort in, you’ve got to find a deal and then you've got to run the deal. And only at the end of the deal, when you sell it, do you actually get paid. And so that takes time.
Bill Gates has famously said “Most people overestimate what they can achieve in a year and underestimate what they can achieve in 10 years”. That’s why with my Property Development Formula we do a five-year plan. It gives you enough time to set and reach attainable goals.
So before you start looking at development strategies, before you start talking to agents and accountants, brokers and builders, take a moment to figure out your money personality.
The answers you come up with will go a long way to helping you choose the right development strategy and move forward with sustained momentum.
