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Defining a strategy

Discussion in 'General Property Chat' started by RM1827, 17th Nov, 2015.

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  1. RM1827

    RM1827 Well-Known Member

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    Hi all,

    I was reading one of the introductions of the newbie investors asking for help and some of the responses were to get the strategy map out first. I think that is good advice but what exactly means.

    Is defining a strategy things like deciding whether you will buy and hold, buy renovate and hold/sell, buy new or old, number of properties needed, time in the market,etc?

    These are hard questions and when someone is starting difficult to know exactly which path is the one that will better for your goal.

    So how do you define a strategy as a newbie with no experience and knowledge?
     
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  2. BuyersAgent

    BuyersAgent Well-Known Member Business Member

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    This is a great set of questions, congratulations you are actually thinking.

    “There is no labor from which most
    people shrink as they do from that
    of sustained and consecutive thought.
    It is the hardest work in the world.”
    Wallace Wattles

    Many people refuse to get to this stage, I see it all as a work in progress and am not "there" yet but have spent a few yrs asking the same questions. Below are some thoughts on where I have come to so far.

    Before a strategy comes a goal. Before a goal comes a reason.

    This is how I have learned to think....

    1. Find your why. Your driving purpose, your reason for wanting a certain outcome. Simon Sinek has a book on this and the Ted talk is here Simon Sinek: How great leaders inspire action | TED Talk | TED.com
    And John Demartini's book "the values factor" is life changing in this regard. Different terminology same concept.
    2. Set long term some goals, write them down. They should be in line with your why and if possible your existing strengths, although don't worry we can always improve our skills. For me long term goals should be bhag (big hairy audacious goals) but this is what motivates me it might not motivate you plenty of people seem to do fine with small goals like comfortable retirement (i just found I wasn't interested unless it was huge)
    3. Break longer term goals into shorter term.
    4.NOW think about strategies that might help you achieve the goals. Again the strategies should be in line with your why and your values. Plenty of property books (and this forum) outline a range of strategy options available. This is the "how" of doing property deals and building a portfolio. An example might be "to buy, renovate and hold 5 positive cash flow properties" or "to buy and hold 7 properties over 10 yrs for capital gains over 20 yrs"
    5. Now think about what you need to do RIGHT NOW to create progress on your strategy, like the next property purchase. Buy 1 property in the direction you want to go. If it is renovating, buy a dump, it will force you to improve your renovation skills. If it is developing, buy something with extra land.
    6. Remember its ok to re evaluate your goals and your strategy regularly. Also we make mistakes and learn. In my early twenties I bought 2 positive cash flow renovators, and it was working for me, then I fell for the emotional hook and bought a nicer, bigger, better located negative geared property right at the top of my affordability range. It slowed me down a few yrs because I couldn't do anything else.
    In hindsight I would call this an error but its ok there are no failures only feedback. Let the feedback you receive cause reflection and strengthen your resolve to do what you want to do.

    Have fun!
     
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  3. Scott No Mates

    Scott No Mates Well-Known Member

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    I'll second @BuyersAgent comments re: the TED Falk by Sinek. Very important to know why you do something not just the how.
     
  4. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    @BuyersAgent has nailed it.

    And the strategy can form organically to a point too, it doesn't have to be set in stone from day one. As your experience increases, so will your ability and desire to do harder/more complex things - it's unlikely a newbie is going to choose multi-unit developments as part of their initial strategy, but completely feasible that by the end of their PI journey they may have completed one.
     
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  5. RM1827

    RM1827 Well-Known Member

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    Thank you for the feedback.. I agree it can be certain try and error until you find what suits you. However, this can be very expensive and a lot of opportunity can be lost until you see the light..:p
    I think essentially we all want our properties to grow that is the big picture... Then start the game of how to maintaining, here comes the yield...but sometimes marry yield and growth is not that easy. it is remarkable for me when I see comments like: "I won't buy that because it doesn't sit well in my strategy..." Or viceversa... It sound almost like you can predict performance... So am I right to think when someone makes that statement is because base in their research they expect and X amount of growth for an x amount of return?
     
  6. Rixter

    Rixter Well-Known Member

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    Where do you want to end up (net worth & annual income that will provide your required ideal lifestyle/purpose) and time frame to get there in? The answer to these questions become your destination.

    Then its a matter of planning or mapping out the route of how you're going to get there.

    Once you know your destination of where you want to end up you plan backwards from that point to present day with a route to take.

    Think of it like a family road trip and you want to end up in Adelaide in 3 days from where you are now in Sydney.

    You then lay out a road map and need to plan a route to take working backwards from Adelaide to decide which towns you need to pass through (& roads you need to take) to get you to where you're heading out from.

    These towns you pass through become your sub-goals for you to identify you're still on course along your investment journey.

    Now, the route you have decided to take to get to Adelaide, becomes your investment strategy and that strategy determines which type of vehicle (your IP type ie houses, villas/townhouses, land, etc) best suits your purpose.

    Example 1 - if you choose to take the highway bitumen route all the way due to the 3 day time frame allocated, you may need a family size passenger vehicle to do it in. So in this example the highway bitumen route is your strategy and family passenger car is the vehicle you're using.

    Example 2 - if you choose to take an off road camping route with an allocated 10 days to get to Adelaide, you may choose to go via other towns along the way using a 4WD off road vehicle. In this example the off road camping route is your strategy and the 4WD is the vehicle you're using.

    The above analogy is similar when it comes to property investment..here's a few examples below -

    ie. If your chosen strategy is buy renovate and sell, you would be looking to purchase older run down houses you can renovate and sell for profit, then duplicate again elsewhere.

    ie. If your chosen strategy is develop and sell to make a profit, then you would be looking to purchase old houses on a minimum size land content, so you could then demolish the house and build townhouses/villas to sell and then duplicate again elsewhere.

    ie. if your chosen strategy is long term buy, hold, rent & sell to make a profit, then you would be looking to purchase either a house or Villas/townhouses to sell 10+ years later on - then with the profits either pay down some/all existing portfolio holdings and fund lifestyle from rental income and/or equity.

    The above examples are just some of many options available.

    If you dont know where you are going all road will appear the same - thus the confusion & frustration many new and sometimes not so new investors experience.

    You will never know when you have arrived if you dont know where you want to end up..

    I hope this helps and provides some food for thought.
     
    Last edited: 18th Nov, 2015
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  7. Investing101

    Investing101 Well-Known Member

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    Well said @BuyersAgent and @Rixter.

    Mix and match until you find your preferred method. First time I reno'd a house, i thought everyday i hope i never ever to have to do that again. 5 days of painting still makes me cringe. But yet I still keep an eye on possible fixer-upers today because I made the most from it. Defiantly ingrained the saying 'you get out what you put in'.

    Probably keep it simple to start, just try to pick the place with best balance between rental yield and growth that you feel comfortable with.




    Don't get in over your head with a reno ;)
     
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  8. RM1827

    RM1827 Well-Known Member

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    Great post, thank you, it does make a lot of sense... I started this journey with a strategy of buy and hold however I would like to try to do some reno although with no experience is very daunting but if you never start you never know I suppose... Right now is a bit of bad timing... To do a reno without experience I would like to start with a PPOR in where you could do it little by little and then rent it out...but living in Sydney and with the market peaking it does not make much sense... We were willing to relocate to Central coast while doing the Reno for example but then with the market over there moving too I wonder whether is wise... I suppose that's another layer to analyse to the whole strategy thing... Property cycles :eek:
     
  9. flyhere

    flyhere Member

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    Learning and practicing can help us to grow our knowledges and assets, no matter what strategy is the best suits yourself.
     
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  10. D.T.

    D.T. Adelaide Property Manager Business Member

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  11. hobo

    hobo Well-Known Member

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    So you have an idea of a couple of strategies which might work for you..... but do you have a GOAL yet?

    Several posters above have mentioned that the strategy is just the way for you to reach the goal that you seek/desire. So what is your ultimate goal?? From what I have seen - when broken down into their simplest forms - goals mostly come down to dollar values and timeframes.

    Some examples:
    - Achieve Financial Freedom (AFF?) on a passive income of $50,000 p.a. ASAP
    - AFF on a passive income of $200,000 p.a. before I am 40
    - AFF on a passive income of $500,000 p.a. before I am 50
    etc etc

    So - what's YOUR goal??
     
  12. dabbler

    dabbler Well-Known Member

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    I am not so sure you need a set strategy. I guess it depends on if your a person who needs to follow a set course or if your the kind that just goes for whatever suits you at the time.
     
  13. RM1827

    RM1827 Well-Known Member

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    I do have a goal!! I didn't mention it but that is the first thing I did.. However I am finding difficult to translate whatever I have designed into actual purchases that fit the "strategy". Any plan needs the properties to perform to a set benchmark either on yield or growth otherwise the plan will fail. Years later you will know if your choices were right or not.

    I do like @Rixter analogy of the roads you need to take to go to Adelaide. However that analogy fail imo in that the road to Adelaide it is already there is tangible and you know that if you take x road will take you to the next town and so on. But in PI, one "road" (house/TW/unit) if it is a lemon will take you nowhere or probably move you away from your goal...
     
  14. Rixter

    Rixter Well-Known Member

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    @RM1827 How do you think the road got there? Someone before you had faith in their ability to pave the way and then the others followed the path.

    From my past 16 years active property investing experience that has allowed me to attain financial independence I realised the formula for Success = 80% 'correct' mindset x 20% 'applied' strategy.

    In other words, how you think is Four times more important than how you plan on doing it.

    You have to work out your plan, keep your focus, persistently apply it and have faith and conviction in your decision that it's going to work for you.

    There will be things totally out side of your control that will pop up along your journey but you dont let them stop and turn you around to where you started out from.

    Even with the road trip analogy you still have to have faith your going to end up at your destination. You dont know whats a head of you. You may come up against floods, bush fires, roads cut off, trees fallen across roads, vehicle break downs etc.

    Your basic big picture plan still remains the same. Just because you plan things in theory doesn't mean they play out to plan in practice. There are unplanned obstacles that pop up along the way that you dont foresee when starting out due to lack of experience, ones unconscious incompetents levels and external circumstances outside of our control as mentioned.

    It's like driving along at night with the headlights on full beam. You can only see what's immediately showing up in those headlight beams and cant see beyond into the darkness until you display faith to travel into it.

    Its the same with investment planning. As long as what you see pop up in front of you in the headlights does not stop you from traveling forward to your planned destination you will eventually get there. Sure we may have to slow down or take detours along the way but don't lose focus on why you're there in the first instance.

    It wasn't a steady uninhibited journey for me either. You just have to have faith in your ability to make a strategy decision and then persistently apply it.

    I hope this helps.
     
    Last edited: 18th Nov, 2015
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  15. Investing101

    Investing101 Well-Known Member

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    64 million dollar question. "Is this property the best choice I could make right now?".
    Don't be afraid of a question no one has the answer to. Hindsight is a wonderful thing. People tend to worry they could lose everything invested. Reassure yourself that you did your checks before purchase, you have insurance, and you could always sell it again.

    Safe as houses.
     
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  16. RM1827

    RM1827 Well-Known Member

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    Yes.. I think what you guys say is true.. The mindset is paramount and not being afraid of make mistakes... Thank you for helping getting my head sorted
     
  17. Jamestangjjj

    Jamestangjjj Member

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    good post. Would be good to be given an example of what a typical goals and strategies looks like?
     
  18. dabbler

    dabbler Well-Known Member

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    So what if your driving & there is a crash, floods, fire or road works requiring deviation ?

    What you seem to be alluding too is gurantees, there is none.
     
  19. timetoact

    timetoact Well-Known Member

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    Really great way of looking at it Rixter.

    As you say you may come across a fallen tree which obscures your path. Two choices; Turn around and go home and not make it to your goal. Or find a way around the obstacle and still make it to your goal, albeit a little later.

    Simple, but perfect.
     
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  20. Azazel

    Azazel Well-Known Member

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    I would suggest reading as many books as you can (Lomas, McKnight, Somers etc...) to get an idea of different strategies. Then you will find one or parts of a few that you feel comfortable with and that fit your destination.
     
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