Posted by Do you know why the Leaning Tower of Pisa leans?
It’s because its foundation is weak. The tower was built on soil that was too soft and couldn’t support the weight of the structure. As the weight of the tower increased, the foundation started to sink on one side, causing the tower to lean.
This is a great example of the importance of having a strong foundation in life.
You don’t want to build your career or your portfolio on a shaky subsoil. You want to build it on something solid. So it’s important to get the fundamental right from the very outset. You have to work through a series of very important questions: what, why, when, where, who, how, and how much.
All of these questions basically put you in a better position to actually be able to go forward with whether you’re building this with the right foundation or not. Over the next few weeks I’ll be looking at each question in detail, so you can make sure that you’re in the best position possible to grow!
The What
So, let’s start with the what. This requires some self-assessment on your part – sit down with a pen and paper and start to thrash this stuff out.
Before you do anything, it’s vital to know what kind of investor you’re planning to be. It’s not simply a case of ‘buy property, sell property, make money’. You’ve got the choice of being a passive investor, or an active one, and there are pros and cons to either one.
Passive investing is the way to go if you’ve got some money saved up, and you want to buy something, but don’t really want to do much more than that. It about ownership rather than developing, which is ideal if you have a full-time job that doesn’t give you much spare time.
The negatives are that it’s not the most dynamic thing in the world, and your returns are going to be fairly limited in as much as you’re buying something that doesn’t need any work doing on it, and there’s only going to be a slow growth of capital value. That’s not bad at all, but you might have a bit more of a fire under you and be more hands-on.
If you want to be more of an active investor, you’re going to be look for something that you can add value to and make a profit from to roll into your next deal. You really need to think about whether you have the time or not. When I started out I was had my own architectural practice and was my own boss, which meant my time was largely my own and I could (for example) run out at lunchtime to meet the builder.
Both types of investing has its own merits. You just need to figure out what will be best for you.
It’s something you really need to know from the very outset, because if you start looking for opportunities without thinking this through, you could end up buying something that is not suitable for the type of investor you want to be.
Next, think about what sector you want to operate within. Do you want to be in the building game, the rental game, or do you want to be in the refurbishment and sell game? Maybe you want to simply be in the flip game?
You can ask the very same questions then if you want to be in the build game. Do you want to be in the residential build game, or commercial, or industrial? Or do you want to be in the rental game? Do you want to build a portfolio? I would say it makes sense to get into just one area because it allows you to specialise. If you’re a specialist in one specific area, you can act quicker because you know the fundamentals better.
Really think this through. Think about what your strengths are, what your weaknesses are: in fact, run a full SWOT analysis on yourself!
Running a SWOT analysis to look at your Strengths, Weaknesses, Opportunities and Threats, is a common business exercise, and one that’s useful to work through on yourself. It doesn’t have to be a heavy exercise: simply take a sheet of paper, divide it into 4 quadrants and label the top two with an S and a W, and the bottom two with an O and a T. Jot down the various things that come into your head. It might show you that you’ve got skills you didn’t appreciate, as it lets you evaluate where you are and figure out if you’re working to your strengths, if you’re aware of your weaknesses, and if you’re fully leveraging your opportunities, whilst mitigating your threats.
Finding your Strengths
Work out where you might have an advantage over other people. For me, it’s my background in architecture: I have a very good understanding of design and can visualise the potential in a property almost as soon as I walk into the space.
Write down your wins over the last 12-24 months and see where there’s good momentum. Dig deep, some of these strengths might not be immediately apparent to you!
Recognising your Weaknesses
Once you’ve worked out what you’re good at, take a look at those areas that you might need to improve. There will always be things in your personality that aren’t natural strengths for you.
Take a deep dive on what’s gone wrong in the past. What failures or disappointments have you suffered over the last 12 months? What caused them? Have you done an assessment or post-mortem on what went wrong and what caused a particular problem? What lessons did you learn? What do you need to do to stop them happening again in the future?
Identifying Opportunities
If you’ve taken your newly-listed strengths into account, you may now find that you have some natural opportunities.
For example. If someone has a trade background, they’ve got an advantage when it comes to understanding the construction process. They may also have a network of people who can help them complete a renovation, or do something at cost rather than needing to hire a contractor.
Look for the low-hanging fruit. What’s easy to reach for today? Opportunities, like strengths, might not be immediately apparent to you, and it’s only when you get it all down on paper that you can see them clearly.
Detecting Threats
Threats are the risks that lie ahead. If you do nothing to mitigate these risks, or are oblivious to them, then your foundations are never going to be solid.
Given the weaknesses that you’ll have already listed, take another look at them and see if these could become threats, if you don’t take action. You have to be aware of the threats, because as long as you are aware of a threat, you can address it.
Working through all of the above will stand you in good stead to move on to The Why, which we’ll be looking at next time. See you then!