What type of property investor are you? Are you feeling like your property portfolio is more passive than active? Michael Petsinis gives an insight on the different approaches to investing and gives a few suggestions on how to regain control of your property portfolio.
All profit-orientated property investors fall into one of the following two categories;
– Price-takers: Investors who are passive and reactionary by nature.
– Market Makers: Investors who are active and make decisions about their portfolios prior to the market changing momentum.
During a booming real estate market it’s possible for both types of investors to make substantial profits. Even poor investment decisions seem to build wealth as gains are based on speculation rather than sound fundamentals – the saying is true, all ships float on a rising tide.
However, we’re not in the midst of a property boom any more.
It’s profoundly different today with optimism being replaced by uncertainty. Currently, those adopting a passive approach may find themselves in a dangerous situation because slippages in value (caused by retreating real estate values) actually equate to a loss of real wealth.
The name of the game for sophisticated investors is to maximise profits rather than just treading water. This is done by taking a pro-active stance with the deals in your portfolio, rather than just letting time take its course and waiting to see what happens.
For example, a common real estate misconception that’s potentially causing “underachiever” returns is the notion of buying and holding in all market cycles.
If property remains flat for five or more years, then you’ll have to work hard to convince me that a zero per-cent return is a good outcome!
The mantra of “time in” the market is little more than a comforting affirmation for mediocre returns. All the smart investors see timing as the key – time your entry, time your hold, and time your exit.
If you’re feeling like your property portfolio is more passive than active, here are four suggestions for how you can wrestle back control:
1. Making a profitability plan
Simply list out your investments, and set minimum annual return benchmarks. If these aren’t achieved, then go with your previously identified “Plan B”.
2. Paying attention to the market
Making investing decisions solely based on historical market data is like driving while only looking in the rear-view mirror.
Past information is important for establishing long-term trends, but we invest in today’s conditions for future profits, so be sure you’re watching today’s signals for tomorrow’s trends.
3. Increasing your education
Not knowing what to do isn’t a sound or logical reason for doing nothing. Don’t fall into this trap.
Read articles, books, the news, internet forums, or attend a seminar… there’s plenty of help available if you ask for it.
4. Taking action
Knowledge without action is of very little benefit. Please, I urge you, take action – even if it’s commissioning a realistic appraisal of what your investments are currently worth to provide a basis for comparison later.
The winds of change are upon us. For some, these new zephyrs will fill their sails and spur them on to new and exciting investing outcomes. Many others, with a passive approach, will be blown towards dangerous financial reefs that threaten future prosperity.
Avoid being a price-taker and instead take ownership in sculpting your investing future by being proactive rather than reactive. It’s never too late!
For more information, visit www.buildexpo.com.au