Part 1. How to treat property investment like a business - Where Most Investors Fail

"Treat your property investments like a business". It's one of those pieces of advice that gets spouted to real estate investors all the time.

It sounds simple enough, you've put a great deal of time and money into your investment and you want it to pay off, so treating it like a business makes sense. And yet so many people still don’t do this. Here's how it seems most people invest in property:

        1. They decide that they're going to buy an investment property. This is usually because

• A friend has bought one;

• They hear about other investors making money with the market rising and decide they don’t want to miss out on the boom; or

• They drive past an open home on the weekend or while on holiday and decide that it seems like a good idea.

        2. They have some equity in their house so they go to their bank who tells them they can borrow 'X' amount for a second property.

        3. They do some "research". That is, they talk to their friend who owns an investment property. Their friend confirms that they should buy one and spout off some of their hot spot suburbs which they should definitely get into. They mention how the market is hot right now and if they don’t buy one soon they'll miss out. Hopefully they also read some books and do some online research too but this can be risky as there are a lot of so called experts out there more than happy to give their opinion hoping they'll pay for an overpriced service or course.

        4. They spend a couple of weeks looking for a property. Their budget determines where they look and they then use confirmation bias to reassure themselves that this is a good investment.

        5. They buy one of the first properties they look at.

        6. They tell their friends about how they've bought an investment property. Their friend seems interested so they help them out by identify some hot spot areas to get into before they miss out.

        7. A few years later they get frustrated because after a real estate agent appraisal on their property they realise it hasn't increased in value anywhere near as much as they'd hoped. The mortgage is costing them money each month and the oven recently broke so they had to spend even more money replacing it. They decide to cut their losses and sell up. They use the small amount of money they made to buy a new car but really they would have been better off just paying off their existing mortgage or putting the money in a savings account and forgetting about it.

Now we will assume that because you're reading this article, you aren't like most investors. You're serious about taking control of your financial future and want to actually succeed in property investment. So lets take a look at how you do actually treat your investments like a business.

The good news is that successful property investing isn't as complicated as people make it sound. Plus, the more you start to take action based on the information in this article, the easier it will become.

In this series, we take a look at the 12 main steps for treating real estate investments like a business.

Step 1. Come up with a plan

I'm not sure who to credit with this one but my favourite fable to illustrate this point is the family who decide that they want to go to a theme park for a nice day out. The Dad looks up some parks online and they all choose the one they want to go to. They buy tickets, get ready, hop in the car, set directions on the gps and then set off. All is going smoothly and they're making good progress. Then, about halfway to their destination, the mum who is driving the car spots some deer grazing in the field beside the highway. She hasn't seen deer before and there are some big ones with huge antlers so she turns off the highway and into field to follow them. The car spooks the deer and they start running in all directions. The mum starts trying to chase them but it's hard to keep up. She starts chasing one, then when she loses it, darts off after another. The field is getting bumpier and bumpier and the family is getting thrown all over the car. Eventually they lose the deer completely. They’re all now battered, bruised and miles off course. It’s also now too late to make it to the theme park in time. The moral of the story is that when you define your goal, come up with a plan, take action and stick to the plan, your road will be smooth and you'll have a good chance of reaching your destination. But if you start chasing the big bucks, you're in for a bumpy ride.

Creating and sticking to an investment strategy is by far one of the most overlooked and undervalued steps for new investors. Until you define your end goal you’re really just travelling blind, going whichever direction seems right at the time. Your goal really does create your roadmap for getting where you want to go.

This must be personal to you. No one knows where you want to get to except for you and by defining it and writing it down, you’re much less likely to be sidetracked. There are good books and articles around to help you with this process or you can engage with a professional adviser which definitely helps to make it more concrete.

One thing to keep in mind is that this shouldn’t be a set and forget type document. Life is full of change and what suited you 6 or 12 months ago may no longer fit so I suggest reviewing and adjusting your goals and investment strategy at least once a year. This allows you to make incremental adjustments as needed to keep you on track and keep your goal working for you. Reading back over your goals is also a great way to reinforce them. As you start to see some progress it'll boost your enthusiasm and reinforce your commitment.


Make sure you check out part 2 of this guide - Mindset.