Seven ways for property investors to reach financial freedom
Most Australians spend 40 years or more preparing themselves for retirement, yet over 95% of them fail, remaining dependent on the government for their main source of income. However, a small group of wealthy individuals reach financial freedom in a fraction of the time.
I’ve found these wealthy investors have mastered seven skills that make it easier and faster for them to achieve financial prosperity.
Let’s examine these master skills:
1. Creating and controlling capital
The wealthy understand the importance of building a substantial asset base. Some do this by building a business while others grow a sizable share portfolio, but my preferred method is growing a multimillion-dollar property portfolio.
Smart investors know how to create and add value to their properties using techniques like renovations and development. They also add value through their expertise or through smart negotiations and buying well.
And it’s no coincidence that the wealthy control as big an asset base as they safely can by leveraging and borrowing against appreciating assets.
2. Transforming capital into passive residual income
Successful investors grow money trees and recognise that cashflow is the fruit. This means that once they have built a substantial asset base, they transition into the cashflow stage of their investment life by lowering their loan-to-value ratios and then borrowing against and living off their equity.
Savvy investors follow these four rules of capital:
- They concentrate it – rather than diversifying, they focus their energy and efforts on their area of expertise.
- They don’t risk it –once they’ve built a substantial capital base the wealthy invest rather than speculate. They are prepared to forgo a “potential” future profit not to risk their current assets.
- They protect it – by owning their assets in the correct structures to safeguard their capital and by having financial buffers in place.
- They value it – professional investors don’t eat away their capital. Instead they convert their capital into cashflow and live of the fruits of their money tree.
3. They are financially fluent
Smart investors recognise it’s not how much money they make that matters, it’s how hard their money works for them and how much they keep that counts. So they learn how the finance, tax and legal systems work and how they favour investors who treat their properties like a business.
The wealthy understand the language of accounting and know how to read balance sheets and income statements, understand how to calculate the internal rate of return on their investments and how to assess their different investment options.
4. They understand the importance of building a great team around them
Savvy investors know they can’t do it alone; so they recruit, direct and refine a team of finance, tax, legal and property professionals. They know that if they’re the smartest person in their team they’re in trouble.
As CEO of their property investment businesses, the wealthy don’t abdicate control of their money to others. Instead they set up systems to evaluate the performance of their investments and their advisers.
5. They are decisive
Way back in the 1930s Napoleon Hill discovered that successful people had the habit of making swift and committed decisions. This principle, which is just as relevant today as it was almost a century ago, holds the key to determining the level of success you will achieve. Successful property investors are able to see the big picture and don’t seem to get caught up in detail. They assess the situation and take decisive action.
6. They understand the true importance of money
The wealthy recognise that to be truly prosperous, they need a lot more than money. Sure money is important in those areas of life where it is important (such as paying the bills), but it’s not at all useful in those areas where it is not important.
Wealthy people have much more than just money. They have the time to enjoy it; the relationships to share it with; the sense of purpose and passion with which to direct it. And they understand the importance of contribution to the community, which brings meaning to their lives.
On the other hand, I’ve found that most people who don’t have money spend so much time struggling to make money that they lose out on the quality of life they deserve. When you have enough money you can go about creating real wealth.
7. They have the capacity for growth
Wealthy people are voracious leaners. They know the fastest way to wealth is through consistently investing in their personal development.
They read books, attend seminars and cultivate relationships with mentors who can advise and guide them. They also network with other positive wealth builders with whom they can brainstorm. It is no surprise that the more they grow, the more their wealth grows.
What about you?
When you are truly wealthy, when you have all the money that you need, what is your life going to be about – above and beyond the money?
Remember money is just a power that amplifies your ability to live your life to its real purpose. It’s no use just chasing money, so what is your vision for your life? What is your purpose? What are your values you will strive to live in accordance with?
It’s this focus on living consistent with your purpose and your values that will give you a balanced and fulfilling life.
Michael Yardney is a director of Metropole Property Strategists, which creates wealth for its clients through independent, unbiased property advice and advocacy. He is best-selling author, one of Australia's leading experts in wealth creation through property and writes the Property Investment Update blog. Subscribe today and you'll receive a free video, The Golden Rules of Property Investment.