Expert Advice with Michael Yardney.
Are you keen to develop financial freedom so you can give yourself and your family more choices in life?
Well, you’ll have to do things differently to most Australians and property investors, because we know most Australians live to consume rather than building a nest egg for retirement. And most investors (1.9 million of the 2.1 million property investors in Australia) never get past their first or second property.
Who should you look to for guidance?
Maybe you could learn some salient lessons from farmers, who do things differently to most of us. You see, they are producers rather than consumers, and they work towards growing something big from something very little – a tiny seed in fact.
Now maybe that’s not so different to that small group of strategic property investors who understand that they must nurture and grow their portfolio to produce the long-term results they desire, instead of consuming all they have and ending up with nothing to show for it when they finally retire.
These smart investors share the farmer’s desire to see their efforts reap greater rewards, and they understand the value of these five important farming lessons.
1. Look at your salary or wages the way a farmer looks at a seed
In other words, rather than focusing on consumption and spending, think about how and where you can ‘plant’ your income to create a return on your investment – for example investment-grade income producing residential real estate.
This will shift your mindset from wondering what you can buy with your money today, or looking for cash flow from your investments, to looking for future asset growth that will eventually produce the cash flow you desire down the track.
2. Be patient and look after your investment the way a farmer tends his crops
A farmer understands the cyclical nature of primary production, nurturing his crops after planting and allowing time and seasonal influences to work their magic.
As a property investor, you need to understand that our market cycles (as with the seasons) and time in the market will ultimately determine your capacity to produce a post-work income through real estate.
That’s why strategic investors don’t only buy properties; they buy themselves time to ride the ups and downs of the property cycles by having financial cash flow buffers in place.
Remember Warren Buffett’s wise words: “Wealth is the transfer of money from the impatient to the patient”.
3. Be selective in how you use your growing asset base, just like a farmer is selective with his harvest
A farmer takes the best seed from the top of his harvest to put aside for next season’s planting. He certainly doesn’t scrape the bottom of the barrel – instead he focuses on quality.
As an investor, you need to keep an eye on your growing portfolio and know when to take out profit.
Now here’s the important part: in the asset-building phase of your investment journey, you should only take out profit to reinvest for accelerated returns, just as a farmer re-sows the best seed to make sure each new crop is more bountiful than the last.
4. Each new cycle (or season) should be seen as a chance to grow your wealth
The farmer never ceases to look for opportunities to grow his crop. When the next harvest comes around, the cycle is repeated and the accumulative effects of seed, plus time, plus harvest are repeated all over again.
We’re at the beginning of a new property cycle now, so just like the farmer, you don’t want to consume the fruits of your investment labours but to continue to look for new buying opportunities that will enable you to use your equity to acquire even more investment-grade assets.
To find success in growing your own crop of high-growth assets, you must change your focus from consumption to production
Like every property cycle before it, this cycle will produce a new generation of property millionaires. The trick is to own the right assets and hold them for the long term, allowing time, leverage and capital growth to work its magic.
5. Work your investment portfolio the way a farmer works his land
The farmer doesn’t sit back and hope and pray that this season’s harvest will be bountiful. Instead, he is proactive in nurturing his land and ensuring his crops are fed, watered and weeded as necessary.
For property investors, the lesson is to be an active participant in the growth and sustainability of your portfolio.
This means taking care of your investments, regularly reviewing their performance and protecting them with the necessary asset protection structures, cash flow buffers and insurances.
It also means keeping a close eye on the performance of your properties and, if necessary, doing a bit of ‘weeding’ if you have underperforming assets that are threatening your harvest.
Remember, smart property investing is about the long-term returns you ultimately produce at the end of the day.
Like every property cycle before it, this cycle will produce a new generation of property millionaires
To find success in growing your own crop of high-growth assets, you must change your focus from consumption to production.
It really is that simple.
Michael Yardney is CEO of Metropole Property Strategists, which creates wealth for its clients through independent, unbiased property advice and advocacy. He is a best-selling author, one of Australia’s leading experts in wealth creation through property and writes the Property Update blog.
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Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.