The most successful investors were not made in one day. Learning the ins and outs of the financial world - and your personality as an investor - takes time and patience, not to mention trial and error. In this article, we'll lead you through the first seven steps of your expedition into investing and show you what to look out for along the way.
1. Getting Started
Successful investing is a journey - not a one-time event - and you'll need to prepare yourself as if you were going on a long trip. What is your destination? How long will it take you to get there? What resources will you need? Begin by defining your destination, and then plan your investment journey accordingly. For example, are you looking to retire in 20 years at age 55? How much money will you need to do this? These are questions you must first ask yourself; the plan that you come up with will depend on your investment goals. (To learn more, please see Having A Plan: The Basis Of Success.)
2. Know What Works
Read books or take an investment course that deals with modern financial ideas. The people who came up with theories such as portfolio optimization, diversification and market efficiency received their Nobel prizes for good reason. Investing is a combination of science (financial fundamentals) and art (qualitative factors). Science, however, is a solid place to start and should not be ignored. But don't fret if science is not your strong suit: there are many texts, such as "Stocks For The Long Run" (1994) by Jeremy Siegel, that explain high-level finance ideas in a way that is easy to understand. (For further reading, see Ten Books Every Investor Should Read and Is finance an art or a science?) Once you know what works in the market, you can come up with simple rules that work for you. For example, Warren Buffett is one of the most successful investors ever. His simple investment style is summed up in this well-known quote: "If I cannot understand it, I will not invest in it." It has served him well. While he missed the tech upturn, he avoided the subsequent devastating downturn of the high-tech bubble of 2000. (To read more, see Warren Buffett: How He Does It and What Is Warren Buffett's Investing Style?)
3. Know Yourself
Nobody knows you and your situation better than you do. Therefore, you may be the most qualified person to do your own investing - all you need is a bit of help. Identify the personality traits that can assist you or prevent you from investing successfully and manage them accordingly.A very useful behavioral model that helps investors to understand themselves was developed by Bailard, Biehl & Kaiser.
The model classifies investors according to two personality characteristics: method of action (careful or impetuous) and level of confidence (confident or anxious). Based on these personality traits, the BB&K model divides investors into five groups:
a. Individualist - careful and confident, often takes a "do-it-yourself" approach
b. Adventurer - volatile, entrepreneurial and strong willed
c. Celebrity - follower of the latest investment fads
d. Guardian - highly risk averse, wealth preserver
e. Straight Arrow - shares the characteristics of all of the above equally
Not surprisingly, the best investment results tend to be realized by an individualist, or someone who exhibits analytical behavior and confidence and has a good eye for value. However, if you determine that your personality traits resemble those of an adventurer, you can still achieve investment success if you adjust your strategy accordingly. In other words, regardless of which group you fit into, you should manage your core assets in a systematic and disciplined way.
4. Know Your Friends and Enemies
Your friends may be reliable investment books, reputable media and investment professionals with experience, long-term perspective and integrity. However, beware of false friends who only pretend to be on your side, such as certain unscrupulous investment professionals whose interests may conflict with yours. You must also remember that as an investor, you are competing with large financial institutions that have more resources, including greater and faster access to information. (See Choosing An Advisor: Wall Street Vs Main Street and Shopping For A Financial Advisor.) Bear in mind that you are potentially your own worst enemy. Depending on your personality, strategy and particular circumstances, you may be sabotaging your own success. If you are a guardian and you see all your friends making a ton of money in the short term on the latest market craze, you would likely be going against your personality if you joined in (see How Investors Often Cause The Market's Problems). Because you are risk averse and a wealth preserver, you would be affected far more by large losses that can result from high-risk, high-return investments. Be honest with yourself - identify and modify factors that are preventing you from investing successfully or are moving you away from your comfort zone.
5. Find the Right Path
Your level of knowledge, personality and resources should determine the path that you choose. Generally, investors adopt one of the following strategies:
Don't put all of your eggs in one basket. In other words, diversify.
Put all of your eggs in one basket, but watch your basket carefully.
Combine both of these strategies by making tactical bets on a core passive portfolio.Most successful investors start with low-risk diversified portfolios and gradually learn by doing. As investors gain greater knowledge over time, they become better suited to taking a more active stance in their portfolios (i.e. tactical bets).(For further reading, see Portfolio Protection In Diversification And Discipline and Asset Allocation Strategies.)
6. Be Disciplined
Sticking with the optimal long-term strategy may not be the most exciting investing choice. However, your chances of success increase if you stay the course without letting your emotions, or "false friends", get the upper hand. (To read more, check out Ten Tips For The Successful Long-Term Investor.)
7. Be Willing to Learn
The market is hard to predict but one thing is certain: it will be volatile. Learning to be a successful investor is a gradual process and the investment journey is typically a long one. At times, the market will prove you wrong - acknowledge it and learn from your mistakes. When you succeed, celebrate.ConclusionWhat you achieve as an investor will depend on your goals, but sticking to these seven simple steps will help keep you on the right path. Bon voyage!
Derek Polcyn (Contact Author Biography) has been involved in capital markets for over 12 years. He worked as an investment analyst at several large North American financial institutions for more than seven years and college-level finance. Derek is an investment coach at InvestWELL Financial, a company that is passionate about educating people to be independent and successful investors.
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Wednesday, July 15, 2009
Sunday, July 12, 2009
6 Golden Success Rules by Milan Doshi
Many of us are familiar with a lot of success philosophies such as Napoleon Hill’s 17 success principles and that of other self-help gurus. I have been doing financial seminars since 1998 and through my observations of many successful people, I realized that there are 6 essential ingredients or what I call the 6 Golden Rules to becoming a Millionaire.
If you want to be successful, you need to master these 6 Golden Rules in the right order:
1. The first rule is:In order to EARN and INVEST More,You First Need to LEARN More
Let’s assume I have a time machine and I can send you back in time say 5 or 10 years ago. Do you think your life today would be different if you had the ability to go back in time? Perhaps you may have taken different courses of study, pursued different careers and even have gotten married to someone else!
What is the difference between the You Today and the You say 5 or 10 years ago? Even though you are basically the same person, the difference is in the Knowledge, the Wisdom and the Experiences you now have that you didn’t have many years ago. Likewise if you want to move upwards to the next level in life, whether it’s earning or investing more money, you first need to upgrade your knowledge and skills.I would recommend that you set aside and invest at least 5% of your annual income on self-help books, motivational audio programs and seminars. The difference this 5% will make to you in years to come will be immense. Often, all you need is just 1 great idea to completely turn your life around.
2. The second golden rule is: NETWORK with as many like-minded people as possible
I am sure you will agree with me that in life, especially in Malaysia, WHO you know is much more important than WHAT you know. Meeting the “right” person at the right time in your life can have a major impact on your life. In your circle of friends, or in your mastermind group, make sure you are the “least smartest” and poorest. If the others are smarter and richer than you, there will be a tendency for them to pull you up as they climb up. On the other hand, if you happen to be the smartest and the richest, you are in trouble! There will be a tendency for the rest to pull and slow you down instead.
3. The third golden rule is: EARN As Much as You Can As FAST As You Can
In my opinion, you need to get into areas where your earning potential is unlimited. If you are an employee, the best departments to be in are the “front-line” ones that bring in the money for your company for example marketing, sales, trading in stocks, bonds, currency, commodities, etc. In fact, the best way to have an unlimited earning potential is to do your own business.Having an unlimited earning potential also allows you to take greater risks in life especially in the investment area. Any unexpected financial setbacks can be easily earned back by working a little smarter, harder and longer. On the other hand, people with fixed incomes will need time to recover back any losses.
4. The fourth golden rule is: SAVE As Much as You Can to Build Up the Seed Capital for Investments
Personally I am not a great believer in saving money, especially when your savings are too little to make any impact. Though saving money is extremely important especially in the case of medical emergencies, I feel it’s much more important to position yourself in a way where you don’t actually have to worry about saving money – it is something that happens automatically.Let me share with you a real life case. Many years ago, a Unit Trust Consultant attended my program and she asked me where her client who was a Taxi Driver and who was able to save RM100/month should invest his money. I frankly replied that while saving RM100/month was better than nothing, it was still not going to get the taxi driver far in life. A far better way for him would be to invest the RM100/month on self-help books on business and entrepreneurship. What this taxi driver needed to move from being a taxi driver today, to owning a fleet of taxis within a few years were the right ideas and mindset.If he could achieve it, his need for savings would automatically take care of itself, assuming of course he is disciplined enough not to spend everything that he makes.
5. The fifth golden rule is: BORROW INTELLIGENTLY As Much as You Can… but make sure your Potential Returns are greater that the Borrowing Costs
Let’s say you purchase a property where the return is 9% pa and your loan is 7% pa. Logically, should you borrow as much as you can? Yes, you definitely should! You are getting rich with the help of the bank’s money. In fact, even cash rich companies borrow money. For example, Genting Bhd which is sitting on billions of dollars is still borrowing money to build their new casino in Singapore.
The reason why borrowing makes sense to them is because their expected returns on that project are far greater than their borrowing costs.In fact, one sure sign of how wealthy you are is how much you are able to borrow. Typically the person who can borrow RM100 million is richer than someone who can only borrow RM10 million who in turn is richer than someone who can only borrow RM1 million!Hence don’t be afraid to borrow money and do make sure you borrow intelligently for the right purpose!
6. The final and sixth golden rule is: INVEST WISELY As Much as You Can
In Malaysia, my strong recommendation is to focus on two powerful asset classes like property and stocks. This is usually more than sufficient for most people and you don’t really need to even consider other investments. Use properties to gradually build-up a solid, stable and predictable cashflow. Then leverage your property loans for stock market investments whenever the opportunity to make at least 20% within a few short months with minimal risks presents itself. If you need more information on this topic, you are welcome to help yourself to my books.
Ultimately, your Investment Goal must be to Build Up Your PA$$IVE INCOME via BUSINESS, RENTAL and PORTFOLIO Income. Your Focus should be on generating CA$HFLOW and NOT so much NET WORTH!! There are some people whom I know who are Asset or Net Worth Rich, but Cashflow Poor. All their properties are highly geared and they have to bear with negative cashflow sometimes to the extent that they don’t even have enough money for their living expenses.
To briefly summarise the 6 golden rules, the most important are the first 3:
1. LEARNing
2. NETWORKing
3. EARNing
Followed by:
4. SAVing
5. BORROWing and
6. INVESTing
If you can master the first 3, you don’t need to even bother about the last 3 ie Saving, Borrowing and Investing. You can be making enough money from earning money that you need not be concerned with saving, borrowing or even investing. You can even leave your savings in fixed deposits and you will not be affected by inflation as your income coming in every month is more than enough to offset any adversity. However to do extremely well, it does help to master all 6 rules at the same time.
Read more...
If you want to be successful, you need to master these 6 Golden Rules in the right order:
1. The first rule is:In order to EARN and INVEST More,You First Need to LEARN More
Let’s assume I have a time machine and I can send you back in time say 5 or 10 years ago. Do you think your life today would be different if you had the ability to go back in time? Perhaps you may have taken different courses of study, pursued different careers and even have gotten married to someone else!
What is the difference between the You Today and the You say 5 or 10 years ago? Even though you are basically the same person, the difference is in the Knowledge, the Wisdom and the Experiences you now have that you didn’t have many years ago. Likewise if you want to move upwards to the next level in life, whether it’s earning or investing more money, you first need to upgrade your knowledge and skills.I would recommend that you set aside and invest at least 5% of your annual income on self-help books, motivational audio programs and seminars. The difference this 5% will make to you in years to come will be immense. Often, all you need is just 1 great idea to completely turn your life around.
2. The second golden rule is: NETWORK with as many like-minded people as possible
I am sure you will agree with me that in life, especially in Malaysia, WHO you know is much more important than WHAT you know. Meeting the “right” person at the right time in your life can have a major impact on your life. In your circle of friends, or in your mastermind group, make sure you are the “least smartest” and poorest. If the others are smarter and richer than you, there will be a tendency for them to pull you up as they climb up. On the other hand, if you happen to be the smartest and the richest, you are in trouble! There will be a tendency for the rest to pull and slow you down instead.
3. The third golden rule is: EARN As Much as You Can As FAST As You Can
In my opinion, you need to get into areas where your earning potential is unlimited. If you are an employee, the best departments to be in are the “front-line” ones that bring in the money for your company for example marketing, sales, trading in stocks, bonds, currency, commodities, etc. In fact, the best way to have an unlimited earning potential is to do your own business.Having an unlimited earning potential also allows you to take greater risks in life especially in the investment area. Any unexpected financial setbacks can be easily earned back by working a little smarter, harder and longer. On the other hand, people with fixed incomes will need time to recover back any losses.
4. The fourth golden rule is: SAVE As Much as You Can to Build Up the Seed Capital for Investments
Personally I am not a great believer in saving money, especially when your savings are too little to make any impact. Though saving money is extremely important especially in the case of medical emergencies, I feel it’s much more important to position yourself in a way where you don’t actually have to worry about saving money – it is something that happens automatically.Let me share with you a real life case. Many years ago, a Unit Trust Consultant attended my program and she asked me where her client who was a Taxi Driver and who was able to save RM100/month should invest his money. I frankly replied that while saving RM100/month was better than nothing, it was still not going to get the taxi driver far in life. A far better way for him would be to invest the RM100/month on self-help books on business and entrepreneurship. What this taxi driver needed to move from being a taxi driver today, to owning a fleet of taxis within a few years were the right ideas and mindset.If he could achieve it, his need for savings would automatically take care of itself, assuming of course he is disciplined enough not to spend everything that he makes.
5. The fifth golden rule is: BORROW INTELLIGENTLY As Much as You Can… but make sure your Potential Returns are greater that the Borrowing Costs
Let’s say you purchase a property where the return is 9% pa and your loan is 7% pa. Logically, should you borrow as much as you can? Yes, you definitely should! You are getting rich with the help of the bank’s money. In fact, even cash rich companies borrow money. For example, Genting Bhd which is sitting on billions of dollars is still borrowing money to build their new casino in Singapore.
The reason why borrowing makes sense to them is because their expected returns on that project are far greater than their borrowing costs.In fact, one sure sign of how wealthy you are is how much you are able to borrow. Typically the person who can borrow RM100 million is richer than someone who can only borrow RM10 million who in turn is richer than someone who can only borrow RM1 million!Hence don’t be afraid to borrow money and do make sure you borrow intelligently for the right purpose!
6. The final and sixth golden rule is: INVEST WISELY As Much as You Can
In Malaysia, my strong recommendation is to focus on two powerful asset classes like property and stocks. This is usually more than sufficient for most people and you don’t really need to even consider other investments. Use properties to gradually build-up a solid, stable and predictable cashflow. Then leverage your property loans for stock market investments whenever the opportunity to make at least 20% within a few short months with minimal risks presents itself. If you need more information on this topic, you are welcome to help yourself to my books.
Ultimately, your Investment Goal must be to Build Up Your PA$$IVE INCOME via BUSINESS, RENTAL and PORTFOLIO Income. Your Focus should be on generating CA$HFLOW and NOT so much NET WORTH!! There are some people whom I know who are Asset or Net Worth Rich, but Cashflow Poor. All their properties are highly geared and they have to bear with negative cashflow sometimes to the extent that they don’t even have enough money for their living expenses.
To briefly summarise the 6 golden rules, the most important are the first 3:
1. LEARNing
2. NETWORKing
3. EARNing
Followed by:
4. SAVing
5. BORROWing and
6. INVESTing
If you can master the first 3, you don’t need to even bother about the last 3 ie Saving, Borrowing and Investing. You can be making enough money from earning money that you need not be concerned with saving, borrowing or even investing. You can even leave your savings in fixed deposits and you will not be affected by inflation as your income coming in every month is more than enough to offset any adversity. However to do extremely well, it does help to master all 6 rules at the same time.
Read more...
Do Properties Make the “Perfect” Investment? by Milan Doshi
I am often asked: “Is Real Estate the ‘perfect’ investment vehicle with which to get wealthy?” Unfortunately in the investment world, there is NO SUCH THING as the “perfect” investment. Every investment product will have its plus and minus points. This article will cover the merits and demerits of properties as an investment vehicle. We will also compare properties with other investment products.
The following are the various attributes to consider when evaluating any type of investment:
1. Returns: The Expected Returns must be powerful i.e. greater than 15-20% pa. Since most properties yield an average Rental Yield of 4-7% pa (depending on property type, location, etc) + Capital Appreciation of 5-10% pa (depending on economic growth, inflow of foreign investment, etc), Properties are considered to be Moderately Powerful.
The returns are usually more than enough to keep up with and even outperform your family’s “unofficial” inflation rate of 6-10% pa. Hence, properties are an excellent long-term investment for keeping up and even out-performing inflation.
2. Stability in Both the Market Value and the Annual Returns. Properties are considered to be extremely stable and hence safe. They are less risky investments as the Volatility or Price Fluctuations are extremely low. On the other hand, it’s fairly common to see prices of even blue-chip property stocks fluctuate by +/- 20% in any given year
3. Liquidity: How Fast Can You Convert to Cash either by Selling or Refinancing? Unfortunately, properties fare very badly in this regard. Properties take time to sell and convert to cash. The earliest, if you are lucky, is approximately one month to sell and another three months to get paid. Leasehold properties in undesirable locations may easily take six months to sell and another nine to 18 months for the transaction to be completed.
However, if your property is fully paid-up or if you have built up sufficient equity by reducing your outstanding loan, you will have the option of revaluing and refinancing the property. It will take approximately two to three weeks to refinance a property with the same bank. If you are refinancing with another bank, it will take a few months for the paperwork to be completed.
4. Leverage: Does the investment Offer you the Opportunity to Borrow Money + does it give you the Flexibility to Choose your Borrowing Level? In properties, you can choose to borrow anywhere from Zero to as high as 100% of the purchase price whereas for Futures or Options contracts, the gearing levels are fixed as the contracts are standardized.
No other investment has this unique benefit. In some instances, it’s even possible to borrow 100% of the purchase price if you are familiar with creative financing techniques. The advantage of borrowing money for property investments is that your loan is gradually being reduced thanks in part to your hard-working tenants, and your asset is appreciating over time thanks to inflation.
5. Expenses or Costs at the point of A) Entry or Purchase and B) Exit Point or Sale of the investment.
Properties are costly investments, both at the entry and exit points. During purchase, there are legal fees, stamp duties, mortgage insurance to cover the loan amount and several other costs involved. During exit, there may be property agent’s fees payable, legal fees to redeem your outstanding loan and other costs.
6. Capital Gains Taxes on the Disposal of the Investment. On 1 April 2007, the Real Property Gains Tax (RPGT) was abolished, hence properties are now on par with other investments with regards to this point.
7. Annual Operating Costs such as Income Taxes, Other Expenses (e.g. Quit Rent, Assessments, etc), Interest Costs, Repairs, Management Fees, etc in upkeeping the investment. Properties fare badly in this regard.
8. Time taken for Transaction to be Completed, at the point of purchase and sale. On average, it takes anywhere from three months at the earliest to even 12 months in some instances for the property transaction to be completed and for money to exchange hands. For portfolio investments, it usually takes only three working days for a contract to be concluded.
9. Stress or Headaches involved in maintaining and upkeeping your investments. With properties, you must be mentally prepared to deal with numerous problems with regards to property and tenant management issues.
10. Maintenance of Proper Records for Bookkeeping purposes if there are tax issues involved. Due to the various fees and charges involved, and their tax implications, it’s absolutely essential to maintain proper bookkeeping records. The more properties you have, the more time, effort and money you will have to spend to ensure your records are kept properly.
11. One-Time Effort Needed. Properties score a perfect 10 here. You only have to work once to acquire the property. Thereafter the property will continue working for you forever, as long as you keep it. On the other hand, portfolio investments require regular monitoring as they are susceptible to any changes in the economic environment.
12. Impact of Mistakes. Mistakes are bound to be made by everyone, especially new investors. The impact of buying the wrong property type, in the wrong location, taking the “wrong” type of loans or having a nightmare tenant is thousands of dollars and a few years of your life to undo the damage done.
Hence it’s extremely important to get it right the first time and every time in all aspects of property investments. Mistakes are extremely costly both in money and time costs.
13. Market Efficiency: Are prices of the investment freely disseminated and known to everyone? Unlike mutual funds or stock prices, property prices are not freely available. To compound the problem, valuation of properties is extremely subjective. The value of a property in the eyes of the seller, property negotiator, valuer, banker and buyer is different. This presents numerous challenges to novice investors as well as opportunities for savvy property investors who possess the knowledge of property values.
14. Investment Horizon: Is there any minimum period the investment ought to be kept? Properties should ideally be kept for a minimum of three to five years as the entry and exit costs are extremely high and the returns are only moderately powerful. Property investments are usually not recommended for those who want to get rich fast or for those who need their funds back in less than three years. However, on some occasions it’s possible to make money by using “flipping” strategies by buying below market and disposing above market.
15. People Skills: Property investment is a people-intensive business and you must be able to build rapport and get along well with real estate agents, sellers, tenants, lawyers, bankers, contractors, etc. You also need to possess good negotiation skills as almost everything is negotiable. If you do not have these skills, you may not find real estate your investment “cup of tea”.
I hope you now have a better idea of the pros and cons of real estate investments as compared to other investments. My suggestion is to have a diversified investment portfolio that contains both properties and other investments as opposed to concentrating everything on properties alone. Till then, i’ll be coming up with more articles related to properties as well as stock markets. For those who have missed the last post, kindly search for "Do Properties Make The "Perfect" Investment?" to go back to the last post where i shared the first 5 attributes! Alternatively, you can also find it in my profile. Good luck and all the best! :-)
Cheers!
Milan Doshi
Read more...
The following are the various attributes to consider when evaluating any type of investment:
1. Returns: The Expected Returns must be powerful i.e. greater than 15-20% pa. Since most properties yield an average Rental Yield of 4-7% pa (depending on property type, location, etc) + Capital Appreciation of 5-10% pa (depending on economic growth, inflow of foreign investment, etc), Properties are considered to be Moderately Powerful.
The returns are usually more than enough to keep up with and even outperform your family’s “unofficial” inflation rate of 6-10% pa. Hence, properties are an excellent long-term investment for keeping up and even out-performing inflation.
2. Stability in Both the Market Value and the Annual Returns. Properties are considered to be extremely stable and hence safe. They are less risky investments as the Volatility or Price Fluctuations are extremely low. On the other hand, it’s fairly common to see prices of even blue-chip property stocks fluctuate by +/- 20% in any given year
3. Liquidity: How Fast Can You Convert to Cash either by Selling or Refinancing? Unfortunately, properties fare very badly in this regard. Properties take time to sell and convert to cash. The earliest, if you are lucky, is approximately one month to sell and another three months to get paid. Leasehold properties in undesirable locations may easily take six months to sell and another nine to 18 months for the transaction to be completed.
However, if your property is fully paid-up or if you have built up sufficient equity by reducing your outstanding loan, you will have the option of revaluing and refinancing the property. It will take approximately two to three weeks to refinance a property with the same bank. If you are refinancing with another bank, it will take a few months for the paperwork to be completed.
4. Leverage: Does the investment Offer you the Opportunity to Borrow Money + does it give you the Flexibility to Choose your Borrowing Level? In properties, you can choose to borrow anywhere from Zero to as high as 100% of the purchase price whereas for Futures or Options contracts, the gearing levels are fixed as the contracts are standardized.
No other investment has this unique benefit. In some instances, it’s even possible to borrow 100% of the purchase price if you are familiar with creative financing techniques. The advantage of borrowing money for property investments is that your loan is gradually being reduced thanks in part to your hard-working tenants, and your asset is appreciating over time thanks to inflation.
5. Expenses or Costs at the point of A) Entry or Purchase and B) Exit Point or Sale of the investment.
Properties are costly investments, both at the entry and exit points. During purchase, there are legal fees, stamp duties, mortgage insurance to cover the loan amount and several other costs involved. During exit, there may be property agent’s fees payable, legal fees to redeem your outstanding loan and other costs.
6. Capital Gains Taxes on the Disposal of the Investment. On 1 April 2007, the Real Property Gains Tax (RPGT) was abolished, hence properties are now on par with other investments with regards to this point.
7. Annual Operating Costs such as Income Taxes, Other Expenses (e.g. Quit Rent, Assessments, etc), Interest Costs, Repairs, Management Fees, etc in upkeeping the investment. Properties fare badly in this regard.
8. Time taken for Transaction to be Completed, at the point of purchase and sale. On average, it takes anywhere from three months at the earliest to even 12 months in some instances for the property transaction to be completed and for money to exchange hands. For portfolio investments, it usually takes only three working days for a contract to be concluded.
9. Stress or Headaches involved in maintaining and upkeeping your investments. With properties, you must be mentally prepared to deal with numerous problems with regards to property and tenant management issues.
10. Maintenance of Proper Records for Bookkeeping purposes if there are tax issues involved. Due to the various fees and charges involved, and their tax implications, it’s absolutely essential to maintain proper bookkeeping records. The more properties you have, the more time, effort and money you will have to spend to ensure your records are kept properly.
11. One-Time Effort Needed. Properties score a perfect 10 here. You only have to work once to acquire the property. Thereafter the property will continue working for you forever, as long as you keep it. On the other hand, portfolio investments require regular monitoring as they are susceptible to any changes in the economic environment.
12. Impact of Mistakes. Mistakes are bound to be made by everyone, especially new investors. The impact of buying the wrong property type, in the wrong location, taking the “wrong” type of loans or having a nightmare tenant is thousands of dollars and a few years of your life to undo the damage done.
Hence it’s extremely important to get it right the first time and every time in all aspects of property investments. Mistakes are extremely costly both in money and time costs.
13. Market Efficiency: Are prices of the investment freely disseminated and known to everyone? Unlike mutual funds or stock prices, property prices are not freely available. To compound the problem, valuation of properties is extremely subjective. The value of a property in the eyes of the seller, property negotiator, valuer, banker and buyer is different. This presents numerous challenges to novice investors as well as opportunities for savvy property investors who possess the knowledge of property values.
14. Investment Horizon: Is there any minimum period the investment ought to be kept? Properties should ideally be kept for a minimum of three to five years as the entry and exit costs are extremely high and the returns are only moderately powerful. Property investments are usually not recommended for those who want to get rich fast or for those who need their funds back in less than three years. However, on some occasions it’s possible to make money by using “flipping” strategies by buying below market and disposing above market.
15. People Skills: Property investment is a people-intensive business and you must be able to build rapport and get along well with real estate agents, sellers, tenants, lawyers, bankers, contractors, etc. You also need to possess good negotiation skills as almost everything is negotiable. If you do not have these skills, you may not find real estate your investment “cup of tea”.
I hope you now have a better idea of the pros and cons of real estate investments as compared to other investments. My suggestion is to have a diversified investment portfolio that contains both properties and other investments as opposed to concentrating everything on properties alone. Till then, i’ll be coming up with more articles related to properties as well as stock markets. For those who have missed the last post, kindly search for "Do Properties Make The "Perfect" Investment?" to go back to the last post where i shared the first 5 attributes! Alternatively, you can also find it in my profile. Good luck and all the best! :-)
Cheers!
Milan Doshi
Read more...
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