With more than 20 years experience in accounting, Tony Dutton has seen his share of investment success stories — as well as his share of failures. Poor outcomes generally come from a lack of proper planning and the wrong kinds of people in your life, he says. On the latest episode of the Get Invested podcast, Tony gave me some of his key pieces of advice for getting an investment portfolio up and running:
Find Calculated Risks
Approaching your investments with a “get rich quick” attitude may — with quite a bit of luck — pay incredible dividends. But it’s also a great way to irreversibly lose your hard-earned money. Instead, you should look for investment opportunities that are risky enough to yield decent returns (property, for example) but not so risky that you could lose your savings in the space of a week.
Strategise Sooner, Not Later
It’s an old adage, but one that is crucial to learn for any investor: the earlier you start planning your financial future, the better. Whether you’re 25, 35 or 45, there is still time to sit down and decide what kind of lifestyle you want to live when you get older. If you don’t strategise, life will pass you by, and you will wake up 80 years old wondering where all your time went.
Invest In Yourself
Before you consider your financial plan, you should first take care of yourself. Whether it’s physical, mental and emotional health, yourself and your family should be your first priority. Money is important, and a crucial key to personal freedom — but it isn’t everything. Make sure you aren’t sacrificing your happiness and well-being to chase your financial dreams. Prioritise personal fulfilment over sheer income, and things will inevitably turn out better.
Find A Good Accountant
When it comes to investment, the most important person you deal with is your accountant. A good accountant can make your financial journey easy and painless, helping you optimise your taxes and keep your investments in line. A bad accountant, however, can potentially ruin years of finances and set your investments back to a point of no return. Finding a good accountant is something that you should put plenty of time and money into.
Just Do It
Once you’ve done your financial planning, you need to pull the trigger and move forward with your plan. Too many people get ‘analysis paralysis’ and keep themselves from actually taking the actions required to see their investments grow. In my experience, there seems to be a mental block that some people have and others don’t. This hesitation will hamstring your entire investment efforts, so put it out of your head and take action.
Investment isn’t simple. But by taking a methodical approach to the matter, you can build a healthy nest egg that produces plenty of passive income for you in the future. Just make sure you get out there and realise your goals.
Listen to my entire conversation with Tony here.
The value of a good property manager is often underestimated when comes to the long-term success in property investment. If you’ve got a good property manager your journey can be a dream. However, choose a bad one or, worse still, try and do it yourself and it often leads to a lot of stress and sometimes financial disaster.
There’s no better person to ask about this than my recent guest on the Get Invested podcast – Lauren Robinson. As an award-winning property manager and long-term property investor, Lauren has seen the good, the bad and the ugly from both sides of the coin.
Here is what she would look for when choosing a property manager:
Choose A Dedicated Property Manager
First up, Lauren recommends choosing a dedicated property manager or firm simply because they are more focused. Their attention isn’t divided between making property sales and the rental roll.
Meet The Property Manager Face-to-Face
She also recommends meeting them face-to-face. It’s a good way of gauging the quality of their service and how well they understand the legislation, which is critical in good property management.
Find Out About Their Leasing Process
If you have a vacant property, how are they going to market the property so that it stands out in the marketplace? Do they do personal viewings? Do they hand out keys? What sort of background checks do they perform?
Ask For An Example Condition Report
The entry condition report is one of the most critical documents in property management. It sets the tone for the entire tenancy. Ask to see one and make sure you’re happy with its standard.
Who Carries Out Routine Inspections And How Often?
As well as finding out how often routine inspections are done, make sure you know who performs them. Good property managers will do them themselves, while for others its done by a junior or even outsourced.
How Will You Be Notified About Maintenance?
It’s also important to know how maintenance is dealt with. Will you be notified, how and when? Do they have any systems or technology in place to handle the maintenance process?
Does The Property Manager Have A Portfolio Approach?
Does the property manager look after a portfolio of properties from end-to-end or are particular functions like leasing, for example, taken care of by one property manager and inspections by another. An end-to-end portfolio style means the property manager is in touch with what’s happening at your property and more likely to be across any issues.
If you’d like to find out exactly how Lauren goes about finding a good property manager, you’ll find a complete checklist in her book called Rented.
Listen to my entire conversation with Lauren here!
Dollar cost averaging into index funds is seen as a bit humdrum these days by many investors, but maybe it deserves another look. I recently had the honour of speaking with podcasting legend, John Lee Dumas, on my own podcast, Get Invested.
As host of the hugely popular, Entrepreneurs On Fire podcast, John has probably picked the brains of more of the world’s top entrepreneurs and investors than anybody, so it’s intriguing to see where he puts his own money. It turns out he’s a fan of dollar cost averaging into index funds – quite a simple, basic-to-basics, long-term approach, to which John adds his own particular twist for a bit of spice. It’s what he calls ‘The Explorer’.
What Is Dollar Cost Averaging?
Essentially, dollar cost averaging is a way of investing that smooths out the bumps in the market. John has a neat way of explaining it: “Hey, you may not have $100,000 to drop into the market right now, but if you’re able and willing to drop in 200 bucks a month, on the first of every month, into an index fund, you’re dollar cost averaging, meaning when the market is up you’re buying less shares, because you’re investing just that $200, when the market is down you’re buying more shares,” he says. “Over time, with the trending of the market, over 30, 50, 70 years, that’s going to return a really great investment for you, so, for me, dollar cost averaging was a great piece of advice.”
What Is An Index Fund?
Index funds simply track the movements, or mimics, a particular group of shares or a whole market. In essence, this means that if the market – say, the Australian Stock Exchange, for example – grows by 10 per cent, then the value of the fund grows by 10 per cent. It’s not rocket science, and there’s a bunch of different funds, tracking different markets commonly available.
The John Lee Dumas Twist – The Explorer
This secure, no-brainer approach forms the basis of John’s investment strategy, but it’s not the whole cake. John explains it best himself:
“Dollar cost averaging into index funds has been a great investment for myself, with what I call the core of my money, that 80% core, so a very conservative dollar cost averaging into a broad index like the total market index and the international index. “And, with that other 20%, I do what I call the explorer, that’s where I took a winger a few years back on both Amazon and Facebook, just two companies that I think are going to dominate the world, but I don’t know that I just think they are, so I took a winger on that, you know, with not all of my money, but with a nice solid 20%, and they both returned well over 100% since I’ve invested in them and that number just keeps going up.
“It will go down when we have the next market crash, no doubt. But I think, over the next 40 years, that those will be good investments, and again, if they’re not, that’s why I have my core,” John says.
John’s strategy is certainly food for thought. As I said, it’s a type of investment that’s been a bit out of favour with investors. But, for you, maybe it’s worth another look as part of your holistic investment strategy?
Listen to my entire conversation here.
Figuring out what it is that you want to do with your life is a fantastic feeling. Once the elation slips away on discovering your ‘thing’, reality starts to sink in, what do I do next? How do I get from here to there? Some people can give up before they even start and view the goal they want as an insurmountable mountain in front of them. While it’s true, looking at a goal as one big thing that needs to be achieved can be daunting, the reality is that all journeys are made up of individual steps that will lead to accomplishment, I call these success pieces.
Someone that knows a lot about mapping out pathways to success across a number of fields is a recent guest I had on the ‘Get Invested’ podcast, Dr David Duggan. He’s been successful in many areas that include dentistry, commander of the navy, financial planner, investor and business mentor and coach.
While each field had its own challenges, David’s approach includes a success piece that he always includes in his planning process, no matter what goal he was working towards. This success piece is finding someone that was already successful in that field and studying their actions and habits and then replicating the exact same approach they took. By using this method he was able to set clear benchmarks for himself in learning a new set of skills, and quickly became successful in that field himself. David’s approach is one that has clearly worked for him and is a highly effective method for others to adopt when planning out their own journeys.
Another way to approach building a path towards a goal is taking the time to ask yourself where you want to be at the end of that journey. Questions such as: what does my perfect life look like? How much money do I want to earn? Do I want to be seen as an industry expert? Do I want to help people with their own life goals? Do I want to own property? Do I want to stop working at 40? The answers you provide to all of these questions will then help you formulate your own plan, and understand the exact steps you need to take to achieve the results you want.
Let’s say you want to build a property portfolio in order to retire at 40 and live off the income generated from that portfolio. A success piece along that journey would be engaging the services of a property investment advisor and/or investment savvy finance broker through the property investment professionals of Australia (PIPA) at www.pipa.asn.au/search to help you map out the steps needed to achieve that goal. Taking this first step would ensure that you have a very clear idea about exactly what you need to do along that path for success.
While these examples may seem obvious, sometimes the most common steps you can take are overlooked when formulating a plan towards a goal. Before you begin any endeavour worth your time and effort, make sure you know what is required to make it successful. It’ll help you stay on track with your goals, and make your intended destination a little less overwhelming to reach.
Listen to my entire conversation with Dr David Dugan here.
After helping some 1,700 property investors, what still surprises me is that most don’t trust anyone to help them invest properly. Instead, they reinvent the wheel and give themselves a second job by doing all the work themselves. And not doing it very well.
That’s because, particularly when you’re starting out in property investment, you simply don’t know what you don’t know.
I recently had the pleasure of talking to Mike Reid on the Get Invested podcast. He’s an inspiring entrepreneur and property investor, and I really admire the insights he’s come up with pretty early on in his journey.
What really impressed me was his understanding of the importance of building a property investment team – a group of trusted professionals who will help you achieve your goals, while enabling you to focus on creating income or building your business.
After success with his first property investment in Melbourne, he was hit by the epiphany of what an amazing wealth creation vehicle property can be. That prompted him to use his equity to purchase two more properties in Melbourne.
As Mike says, “at that point I started to accumulate a bit of a property investment team of people like a great mortgage broker and a buyer’s agent that could help me pick the property … typically they save at least the expense of hiring them.
“It was a no brainer for me to spend the money on that kind of advice,” he says. “For me the bucket that gets most of my time is business. I can’t give the time to property, so I need to get a great team around me to run that strategy.”
But choosing the right team goes far beyond simply choosing the right mortgage broker or buyer’s agent. Getting trusted accounting and legal advice should also be and important part of your plan.
As I said to Mike on the podcast, property investment is really just a house in the shape of a moneybox, and it’s actually about the strategy, structure and financing that’s going to make a massive difference to the end result – property is a game of finance and the property is at the end of the process.
Having the smarts to assemble a good team around you is key. Think of it like a sports team. And think of yourself as the owner of the team. You don’t want to be out on the field yourself. You just want the best players in every position all coming together to play your game. It’s a winning strategy in sport and a winning strategy in property investment.
Listen to my entire conversation with Mike here!
For investors who are buying existing properties or building the properties themselves, there are a few key benefits of depreciation that you should know that will help you save money and gain wealth.
But first, what is depreciation? It’s a simple concept that can be used for lots of things in business, but particularly when buying investment properties. As things wear out over time or depreciate in value, you’re entitled to deductions for your business. In the case of property, the items in there and the bricks and mortar will depreciate in value, so the tax office allows you to claim that back. Of course, you want your property to appreciate in value, but depreciation deductions are something that not enough people are taking advantage of, or optimising – but you should.
Depreciation is one of those aspects of property investing that can help you create wealth. Of course, you don’t buy a property for its depreciation value or solely because of tax reasons, but depreciation is key because it has a large impact on cash flow. An important part of the business is learning how to recuperate as much money as you can within the rules that exist and managing cash flow.
Before you even begin the purchasing process of a property, calculate the real cost of the property on a per week basis. Depreciation is one factor that will affect your cash flow of course, but crunch all the numbers before buying a property. Incorporate every cost into buying, building or holding a property. Incorporate the impact of depreciation and other measures into this exercise. By going through this vigorous plan, you’ll be ahead of many other property investors.
Ensure that you enlist an accountant who’s fully supportive of depreciation schedules. To detail the impact of depreciation schedules, here’s an example from many years ago. In those days, you could retrospectively go back four years to re-look at previous returns. Given where we were at, by creating a depreciation schedule, we ended up with $20,000 in our back pocket. This was a real eye-opener about the power of depreciation. A good depreciation schedule will significantly change the whole holding cost scenario for holding a property.
Every investor learns along their own path, but in the early days, we were buying older properties, renovating them and creating some equity to go forwrd. But now, what we’ve done in the last half of our portfolio is to focus more on building because of the depreciation benefits on new properties. So, when you consider your next property, don’t forget to consider the cost and wealth building benefits of depreciation.
Listen to our entire conversation for more helpful tips!