Do I really need a 20 year property investment strategy?

We read it and hear it everywhere, in property investment books, forums, newspapers and magazines:

What is your 20 year investment strategy? What is your exit strategy? Will you be selling the property in 10 or 20 years’ time? Refinancing, living of equity, starting a business to supplement your income, and so and so on…

Pick any property investment book and you will find at least one master plan that will make you financially free in 10 to 20 years. It sounds all nice and exciting and motivates us to become property investors, which is a good thing. I would recommend new investors to read a few of those books. They not only motivate you but also educate you by giving you a crash course in property investing. But we should not forget that these book are made to sell and in most cases promote more educational material. They provide an income source for the author, the property investor turned educator. Therefore the master plan might in theory make us financially free in 10 – 20 years but unfortunately we do not live in “theory” (not to be taken literally… since we do… live in theory…). We live in reality. And in reality everything changes. Our financial situation changes: We get promoted, get a new position, and/or move to another country. The economic situation changes: The economy goes up and down, crashes, peaks and stagnates. And most importantly WE change: We hopefully become wiser and learn to make better decisions. And as such it is not realistic to have a +10 year investment strategy that is set and done.

It is definitely realistic to have a goal and a vision of where you want to be in the future and setting short term goals to get you there. These short term goals should take into account your current situation and should not fully lock you in or fully restrict your future options. And most importantly they should not rely on many assumptions. Buying an investment property and relying on the sole assumption of 7% capital growth for the next 10 – 20 years, to reach financial freedom, is definitely not the way to go. If that assumption is not met than this property will cost you more than it could make you. So what is the way to go then?

Why not buy a successful investment from day one? Why not buy an investment property under market value, set it up with a tenant that will cover most of the expenses, in a location with potential capital growth?

Following certain rules that help you maximise your

  1. Future options
  2. Your investment’s value
  3. Income generation ability

now and in the future is the way to go.

To keep it short and simple, the 3 most important rules to follow are:

  1. Buy under market value – Negotiate hard. This helps you create equity straight from day one. Don’t accept a price under market value.
  2. Buy properties with development potential for now and/or in the future.
  3. Buy where there is high rental demand.

You cannot go wrong with an investment property that meets all those 3 rules. If you want more than 3 rules have a look at Which investment property should I buy? where we add 2 more rules to the mix.

All the best in your investing,

Andrew

Property Analyser

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>