While achieving financial freedom through property investing is very achievable for most Australians, it’s also quite an overwhelming task.
You see, unlike buying a property to live in, the main reason for buying an investment property is to make money – to help you build a long term “cash machine.”
And the better you can nail down the process, the more successful you can become and the easier it will be to reach your ultimate goal of financial freedom.
You see.. the concept of property investment is a process.
Property investing is a journey which needs to be done in the right sequence rather than see as a one-off event.
It’s all very well knowing about the typical stages of an investment journey, but did you know that most investors never get past phase 1 or 2?
In fact, 90 per cent or more of investors never get past buying their first or second property - meaning they don’t even surpass phase 1.
The reality is that most investors need at least 30 years to build a substantial property portfolio which is big enough to replace their personal exertion income.
But you can speed this up by shortening phase 1 by receiving strategic advice and not making mistakes.
The three phases of your property investing journey
No matter how long it takes to grow your wealth, there are typically 3 natural maturing phases as you advance through your property journey.
Phase 1: Learning what NOT to do
This is the first phase where property investors learn about investing by trying different strategies and listening to every point of view in the market.
But the most likely outcome for doing this, even years down the track, is that they are often not much better off financially than when they started investing.
This phase often takes 5-10 years for many property investors, although some investors will remain stuck at this stage permanently.
Phase 2: Sticking to a winning formula
Some property investors who have managed to critically examine what works for them and identify a winning formula in phase 1 are able to move onto phase 2.
By this phase, these property investors have gathered enough wisdom to stick to what works for them and are able to stop listening to everyone else’s point of view.
There will always be Property Pessimists around - you know…Negative Nellie’s telling you not to invest
And there will always be white noise to confuse you with the latest property investment fad.
But in phase 2 of their investment personal growth, investors stick with “what has always worked” rather than looking for something that “works now” such as finding the next hotspot or getting rich quick.
Phase 3: Moving towards a financial objective with a deadline
This is the phase where the investors asset base grows sufficiently to allow them to leverage off their increasing equity and cash flow to buy more properties.
The different types of investors in each property investment phase
Unfortunately, 90 per cent of property investors sit in phase 1, where they will remain for a long time until they’re able to become aware enough to critically examine what they’ve done.
These investors will probably never move from this phase until they have sought the right advice to help objectively review and learn from past experiences.
Why doesn’t this happen?
Most property investors struggle to move out of phase 1, often because they are often not even aware that they are in it!
Awareness is 50 per cent of the answer.
Phase 2 investors make up slightly less than the remaining 10 per cent of property investors in the market.
They’re winners in that they’ve developed their knowledge and understand what works for them, but phase 2 investors would do so much better if they were able to move up to the third and final phase and allocated their resources and capacity intelligently.
Phase 2 investors’ investing activities can still be subject to the market, but at least they have found a winning formula for themselves in property, (even if that winning formula is still subject to market movements).
Lastly, the investors in phase 3 make up less than 1 per cent of all property investors in the market.
Phase 3 property investors are the only group that have not only conquered the property market (i.e. have a winning formula in property), but have also conquered themselves as well to become strategic investors.
Strategic investors buy properties so they can buy more properties (not for cash flow.)
They have built an excellent team around them and are in more control over their financial destiny than either of the previous 2 groups of investors.
Phase 1 investors often find themselves feeling “stuck” even after many years of investing while phase 2 investors can also feel stuck when market conditions change against their expectation.
It is only phase 3 investors who can go through both good times and bad with confidence and certainty.
How many properties do investors typically own?
The Australian Taxation Office tells us that in the 2018-9 tax year (the latest statistics available) there were 2,227,194 property investors in Australia.
The ATO tells us of every 100 Australian individuals who lodged a tax return, 15 people earned rental income: 9 had a rental loss and 6 showed a rental profit on their tax returns.
And now the interesting part….
Here’s how many properties these investors hold:
1 investment property – 71 per cent (1.59million)
2 investment property – 19 per cent (420,529)
3 investment property – 6 per cent (129,816)
4 investment property – 2 per cent (47,319
5 investment property – less than 1 per cent (19,513)
6 or more investment property – less than 1 per cent (20,434)
What does this tell us?
It tells us that clearly, most property investors failed to build a property portfolio beyond 1 or 2 properties.
In other words, it shows the sheer volume of investors stuck in phase 1 of their property investment journey and who haven’t worked out the solution to overcome the barrier of them achieving financial freedom.
A strategic property plan will help achieve real financial freedom
Sure the property markets are bounding forward, but not all properties are going to increase in value at the same rate . Now, more than ever, correct property selection will be critical.
And contrary to what many people seem to think, attaining wealth and real financial freedom doesn’t just happen.
It’s the result of a very well executed plan.
And before we go any further, I’ll point out that simply buying a property is not a plan.
What you need is a strategic property plan as this will help you achieve the financial freedom you desire because it will help you with the following:
Define your financial goals
See whether your goals are realistic, especially for your timeline
Measure your progress towards your goals – whether your property portfolio is working for you, or if you’re working for it
Find ways to maximise your wealth creation through property
Identify risks you hadn’t thought of
And the real benefit is you’ll be able to grow your wealth through your property portfolio faster and more safely than the average investor.
As always, before embarking on creating a strategic property plan yourself, you should speak to an “independent” property advisor.
Michael Yardney is a director 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.