Here we are at the final part of my series on the fundamental questions you need to be able to answer to make sure you have the strongest foundations possible in every aspect of your life and career.
If you remember, I started off by talking about why the Leaning Tower of Pisa leans. It’s because it was built on too-soft soil, which 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: it’s a fantastic metaphor for the importance of having a strong foundation in life.
It’s important to get the fundamentals right from the very outset, working through a series of very important questions: what, why, when, where, who, how, and how much.
Having covered the first 5 questions, we’re now going to look at the final two: the How and the How Much.
So, you want to start a career in real estate and property investment. How will you do it? How will you finance it? How will you build it? How will you lease it? How will you market the property?
How is what it all boils down to.
But to answer your ‘How’ questions, you need to look back over the answers to the previous questions – they’ll point you in the right direction. For instance, instead of asking how will I lease and market a property, look at your answers for question 4 – who? Who do you know that will help you lease and market a property?
How much – it’s not just a question of money
Obviously, it’s important to think about how much capital you have to invest. One of the biggest myths I’ve seen when we talk about the property market is that you don’t need a huge cash deposit to start investing in property.
Whilst that might be true in the US, where it’s possible to put down a 3% deposit and borrow the other 97%, closer to home, in Ireland or the UK, higher deposits are required, because banks are a lot less likely to hand out money.
In Ireland, it’s almost impossible to get a low deposit, because the Central Bank put rules in place after the 2008 crash. In days gone by I’ve managed to get a loan for 110%, but that just wouldn’t be possible now. Obviously, a big loan isn’t free money – you’re giving the bank an amount of hold over your other assets, so it’s wrong to think that it’s free debt, or that you could walk away from the property if it all goes wrong.
If you’re buying, you’re going to need a substantial deposit- in the Irish market it’s 10% for a first time buyer, or 20% if you’re an investor buying a property beyond your first home.
But there’s a lot more to consider than money when you ask yourself ‘how much?’. For instance, how much time do you have to invest? That goes back to the first question of what kind of investor you want to be – passive or active?
Passive investing is the way to go if you’ve got some money saved up, and 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.
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.
If you want to be more of an active investor, 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.
Another vital thing to ask yourself is how much risk you’re prepared to accept. Some people have got a huge aversion to risk, whilst others are willing to gamble more. Obviously if you want to make a lot of money, you have to be prepared to accept some of the risks that go with that. Big risks mean big rewards, and if you’re not prepared to take a risk, then you might have to dial back your expectations.
Two sides of the same coin
One of the most important things to know is exactly how much you don’t have, whether that’s expertise or knowledge or something else. Knowing what you don’t have is super important, because property is not a game where ignorance is bliss. Once you’ve identified something that you’re lacking, then you can find ways to shore up what you’re missing.
If there’s something you don’t know, then you need to find people with expertise in that particular area to help you. Take health and safety, for example: if it’s something where your knowledge is lacking, it just takes one thing to go wrong for you to end up losing everything.
So whilst it might cost you a bit more, it definitely pays dividends to bring in the professional. Remember, this is a business, not a lifestyle. You don’t win by taking shortcuts and trying to save a little bit here and there. Believing that ignorance is bliss and trying to cut corners is a big risk that could possibly stop you before you’ve even started.
Don’t get complacent
So, those are the basics. But don’t think of this as a one-off exercise that you do once and then forget about. Every now and then I like to sit down with my journal and work through these questions myself. It’s an important thing to do from time to time, no matter how experienced you are. The worst thing you can do is get complacent.
You have to stay fresh and alert You. First of all, the market is changing all the time. So, just because you’re experienced doesn’t mean you shouldn’t sit down and reflect on where you are. If you do the same thing over and over and over again to the point where it becomes easy, then it’s time to stop and have a think about what it is you’re doing, rather than just sitting back and thinking that you’re on Easy Street.
What happens is the world changes around you while you’re not paying attention. I’ve seen it happen: incredibly successful investors taking their eyes off the ball because they were doing so well, and along comes a smaller competitor to eat up all of their market share while they were busy partying. You can’t afford to fall asleep at the wheel.
So, this covers off the last of the fundamental questions I believe you should be able to answer so you can ensure you’re starting out with the strongest foundations possible: What, why, when, where, who, how, and how much. Those are the questions you need to ask yourself. Reflect on them, and think about whether there are any areas where you could improve. Are there any areas where you could innovate?
I really hope you’ve found this series informative and enjoyable – see you next time!