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The Three Pillars of a Successful Real Estate Strategy

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Transcript

When looking to invest, there are three pillars. Firstly, what does that mean? Pillar number one is your finance strategy.

Finance is the backbone of property. It ignites property booms and it shuts down property booms as well, going into long declines when the right type of money isn’t available.

You’ve then got your property strategy, the type of location, the type of property, why you’re buying it. Then you’ve got the third pillar, Risk and Comfort management. So when going into these three, why it’s really important to consider these three pillars to make a successful real estate strategy is all because they each play a different part in either making you keep going or making you stop.

Let’s talk about backwards going, going forward, right? Let’s talk about Risk and Comfort. Imagine you have THE best property, and the best means something different to each individual, but it may have a period of, “Look, you’ve got to hold through these different environments,” whether it be different interest rates, reduced cash flow, or it may mean maintenance coming up because it might be a larger block of land in all the block of home, but that could come up.

With these risks and comforts, you could have the best of something awaiting or moving on that trajectory of really popping off for capital growth or cash flow increases or development opportunity. Right? But you decide to go, “I just can’t do this anymore. It’s not for me. I got to pull out of the deal.” And what I mean pull out of the deal, not stop buying it, but maybe you’re six, 12, 24 months in, you’re sick of the repairs and you want to get out of it.

That could have been all this work, all this effort that you’ve gone in to buy the right type of deal in the right place, but because of risk and comfort management, it wasn’t right for you. When you consider that, you now drop a deal that maybe you look back in the papers or maybe you look back in some website and you say, “I wish I didn’t sell that one.”

These are things that can happen when you don’t have a right level of risk and comfort management, where maybe another location, perhaps not as prolific in capital growth or not as prolific in cash flows, but you could have held onto it for longer because you felt comfortable from a risk management perspective. It’s about finding that balance.

You don’t want to go into this going, “I’m open for everything,” unless you can go through the ups and downs and you don’t want to go in, “Oh, I just don’t want this. I don’t want that. I don’t want this,” but on the flip side have a promise for capital growth, that should be massive, right? Because as you know, if everything wasn’t risky, then everyone would be doing it, right?

Number two is when you go to the property strategy. While we’re going into number two now, being property and last finance, is because finance is the backbone, but for property there’s so many ways around it. The levels of cashflow you want to set aside. How comfortable in terms of location and where you’d like to go? Whether it’s a development deal, renovation deal, a cashflow or commercial property, multi occupancy, basic bread and butter homes, certain locations out fast, certain locations middle ring, inner ring. Right?

Again, it really comes down to where you are at your journey, right? Because for someone else, their first property deal might not be a unit block or four units in a location with high cash flow. But for someone else, based on where they are and their strategy and what they own, that might be the perfect deal. Right? That’s important to consider where you sit and what strategy aligns with you.

Now, in terms of the starting phase of your investment journey, places where you’re able to go and get the right type of capital growth balance drivers to help you uplift that portfolio to go and acquire more properties is the key. Right? But then again, if you couldn’t handle some of the cash flow constraints, and you don’t handle some of the cash flow constraints, you might exit it. That’s where that capital growth, or that’s where that risk management and property strategy align together.

Then you go, okay, finance. There’s no point trying to go into a strategy and you think, “I need to buy an inner or middle ring property in that location, in that city with that much risk comfort from income level and that much risk comfort from maintenance,” and then all of a sudden you go, “But I can only do in 400,000.” Okay. That might provide you opportunities in X cities, but it might lock you out of others.

You have to go into it understanding that what your limit is from the finance starts to paint the picture for property, then you work around it with pillar three, around your risk management and comforts. With finance, it’s so, so important because people assume, “What I can borrow is my strategy, where it gives me the best rate is my strategy.” It’s more to that.

Are you cross-collateralized? And are you maybe single in terms of a loan for each property? Are you buying places where you’re touching your peak borrowing capacity in one go, or are you splitting it across multiple properties?

When you’re thinking about that, that finance will help you look into it because, are you assuming the right rental yield? Are you too low? Are you going to a low document loan provider or a full document loan provider? Are you taking a commercial lease stock loan or commercial full document loan?

From that perspective, there’s so many ways to go about this, but the three pillars, finance, property, risk and comfort. Now, when you’re on your investment journey, if you don’t have these three considered as part of your real estate strategy, well, I just want to then question, is it a successful real estate strategy?

Sometimes we get success by accident, great and good on you if you have, but in terms of planning that, having these three core components can really set you apart.

That’s it from us here at InvestorKit, The Experts in Wealth Creation, helping you take action.