How to use leverage in the right direction for getting great results when using other people’s time, money and knowledge? How to avoid that leverage backfires by losing control and being disconnected from the business?
Sufficient Income to quit the day job
Leverage Money, Time and Knowledge
Some do but others don’t get so far quitting the job
What brought me here was a discussion with a fellow investor who said, you got there by managing your own landlord business, I never will. Talking like that may indicate having unrealistic expectations for what it meant quitting a day job. When investing for the future the hardest experience to take is that money does not roll effortlessly into investor’s bank accounts to grow a business or retire earlier in life. There is never enough time and finance to satisfy people’s expectations. To overcome those limitations successful people make compromises and raise their standards.
It is not what we get, it is what we become in the process of doing that we love most. Let me look at strategies dealing with a shortage of time and finance to put dreams into reality. Yes, you need knowledge how to manage the basics driving the market you want to invest in. Key words for the property market are equity and yield, supply and demand, market value and price, inflation and interest rates, etc but also knowing about strategies why to invest in yield or capital gain properties.
To play in any market you need income streams to satisfy the bank, cash-flow to pay your bills and time. To avoid headache in one or all three areas you have to find strategies to overcome the constraints. One strategy is called “leverage” to leverage money, time, knowledge and skills.
For instance this fellow investor, mentioned above, was convinced by taking on part-time jobs that would pay additional bills and hiring a property manager would increase rental returns. Unfortunately exactly the opposite happened because your goals need to distinguish passive investors from active landlords.
Leverage money, time, knowledge and skills
For getting in relative short time great results leverage is the key word for being successful. To say it upfront, it works in both directions with the same force and that is why I already said “raise your standard” and discipline to make it worthwhile working hard. The basic idea is simple, you use other people’s time, money and knowledge to boost your results. Let me illustrate:
Invest money you don’t own
Financial leverage is when an investor borrows money to acquire an income-producing investment property and expects income generated by the investment that covers the cost of owning and managing the investment. Using that strategy works to magnify investment returns.
But what happens in a downwards market when e.g. the equity drops below loan values or the income becomes insufficient (negative gearing)? If the income does not cover the investment related costs (negative gearing) it still can be used for eligible tax deductions or for off-setting loss against another income stream.
A negative cash-flow strategy won’t work if you need income to replace your job. Also for a successful business is cash-flow king, but for building up a property stock using capital gain as acceleration then negative gearing is an excellent strategy.
Use other people’s time to increase productivity
You are very busy, especially if you want to get more out of your time in future. Leveraging time means empowering people to help you with time consuming routine tasks. Find out your time killers and hire someone to do it for you. Look in two different directions; boost your business by using time saving technology and allow more time for yourself for being focussed on the business.
When I accelerated my business, I did everything myself where I was productive, but for routine tasks I found help. Think about your business strategies. If you engage an agent for the main part of your business, how then can you develop efficiency and a profitable business?
Leverage people’s knowledge and skills
Knowledge is the source of business ideas, developments and essential for forming the right business relationships. It is the severe truth, nobody knows everything. Also a layperson would never replace a specialist in a dedicated field. That is why working with a team of knowledgeable people is the key for success, for inspiration and guidance to keep learning. The day you stop learning is the day you start sabotaging your own business.
To take away
Leverage is only useful in the right direction. It is quite logical when losing control and being disconnected that leverage backfires. For instance when contractors, agents and associated partners take control and pursuing their own business interests in such situations you would run your business on risk (Note the specific for active and passive investors), good luck.
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Klauster Blogs lead to a real person who worked as computer network architect for many years in different countries until retiring from IT and mastering a life as property investor and landlord.
The passion of sharing experiences comes from turning hobbies into income streams and business. Helping people to avoid pitfalls and to be free to choose has been satisfying and most rewarding.
The philosophy to treat life, partnerships and hobbies as an investment has helped people in our circle. Life is a dream with a deadline, happiness comes from making the right choices and having realistic expectations.
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