This blog illustrates the fine line between making loss or profit when investing in properties. This line differentiates investors with intention to build up wealth and landlords who use their investment to run a business. We do both and our practical tips can help you to avoid pitfalls making the difference of success or failure
Property Investor’s Luck or Failure
The fine line between making loss or profit
Are you one of those who have become a landlord more or less accidentally? Changing circumstances and renting out the family home is one of the common reasons. For me as property investor becoming a landlord was the right way to convert cash-flow negative investments into a business by reaching financial freedom for an early retirement. Let me share my luck or failures with you for preventing nightmares.
For property investors there is a fine line between making loss or profit because of low yield rentals, unplanned vacancies or damage, and constant changes to taxation rules and regulations. Housing Politics are targeting investors and affecting landlords more than in one way like definitions of expenses, which are rent deductible or not.
New Zealand’s taxation rules are defined on investor’s “intention” and the object of frequent debates about misunderstandings, investors and speculators. If you understand housing politics then you know that politicians use people’s emotions to reach a wider audience of voters, not to solve people’s problems, that has kept housing on the agenda and election campaigns for years. And so it is tricky for landlords and investors, too.
If you start as investor/landlord, you need to adhere to four simple but complex rules from the beginning :
#1—Be informed, prepared and professional
Dealing with humans you need not only humor, you need knowledge for making informed and professional decisions. Risks come from not knowing and leaving the control in other people’s hands like property managers, accountants, or agents. You invested huge amounts of money, you are liable and when something goes wrong—it is your problem. Don’t give it a chance and be blinded by professionals you trust.
Make your investment to your business and run it by the books that leads to rule number two.
#2—Keep your paperwork immaculately, stick to your investment plan
For first-time investors/landlords follow these tips. Using an property manager/agent is a business decision, but not to give up control. Running investments on auto-pilot backfires at some stage. Monitor what your partners are doing and ask questions to understand or be informed. At some stage you will get a tax audit and be responsible — not your accountant.
Your investment plan is your compass, understand that cash flow alone won’t get you out of the rat race, an invest business is a combination of cash-flow and capital growth.
#3—Believe in concentration of capital, resources and success
Resources are limited like time and money. If you concentrate your investment in fewer but better deals and become an expert, success comes with lower costs and faster results.
Leverage time, money and filter given advice. Nobody will do it for you, getting finance, putting time and energy into an investment deal and grow your own net worth.
#4—Communicate clearly and confirm in writing
Keep your tenants and team of people working for you informed. Define the communication channels in your contracts and say so if you take photographs for preserving evidence.
The importance of having written records becomes clear when resolving issues or giving evidence in court.
Common disputes e.g. with builders are unfinished and substandard work, delayed completion and budget blow-outs. Check this link regarding quotes and what you need to set in writing before commencing work.
Know what you want to achieve, don’t follow the crowd, find your niche. Property values are fairly consistent over time with below market gains during the boom times and minimal losses during crashes.
To balance a portfolio you need cash-flow properties which do likely little (or never) appreciate and properties, which do not provide much cash-flow but are good to hold for capital gains.
Be informed about taxation rules, know the differences between home ownership and investing, and draw the line between investing and trading or developing properties.
For finding a wide range of information use the article library or use QUICK SEARCH at the top, right hand corner of the webpage. When filling your blanks browsing through our blog posts you do not need to agree, more important is—keep thinking and follow your own investing rules. We appreciate any comments, good luck.
Property Investor’s Blog
Investor’s & Landlord’s Luck and Failure
Klauster Blogs lead to a real person, IT professional, investor, landlord and business owner with interests in technologies, properties and trading.
His passion, making experiences available and helping people like you, comes from extensive travelling and the principles of life—how to avoid pitfalls in unfamiliar territory when investing or forming relationships.
The philosophy to treat life, partnerships and hobbies as an investment has helped people in his circle. Life is a dream with a deadline, happiness comes from making the right choices and having realistic expectations.
Come along and share your views—learning from each other gives confidence