Make investment about what you want, not how much you want
I suspect you’ve heard of ‘return on investment’. For some investors, this number becomes the be-all and end-all of their investment decision-making process. In this article, you’ll learn how to measure the success of your portfolio differently. This method really pinpoints how some of the best property investors think, and it will help you define what it is you really want from property investment.
What is a return on investment?
When investing, one of the major ratios used to measure profitability is the return on investment, or ROI. This is generally expressed as a percentage. For example, if you invest £100,000 in an asset and it increases in value by £10,000, your ROI is 10%. If it also pays an income of £10,000, your ROI is 20%. This is also called the gross yield.
One way to increase your ROI is to use the benefits of leveraging – investing using other people’s money. When you do this, your money works harder for you. It’s why you can earn a spectacular real yield on your money by investing in property.
What is your ROI target?
Now that we’ve defined ROI in the traditional sense, I want to redefine it. You see, I have always said that lifestyle is the only reason to build a property portfolio. Investing in property should allow you to live the life you want to lead.
It’s easy to get wrapped up in the numbers of property investing. Rather than considering your investment property portfolio in terms of its percentage yield, you should ask the question “Does it provide me with the lifestyle I want?”.
So, here’s the thing. For most investors, the goal of property investment is that it pays enough income to pay their living costs and enable them to live a comfortable lifestyle doing what they want to do.
A bigger portfolio isn’t necessarily a more profitable portfolio
When they start out, a lot of property investors think in terms of numbers. They measure their success by how many properties they own.
A mate of mine built up a portfolio of around 30 properties. To start, it paid him a good income. But it caused him a huge amount of grief, too. He was forever having tenants renege on the rent and disappear with furniture and white goods, never to be seen again. Eventually, he sold almost all those properties and kept the best three. The change in him was dramatic:
- He was no longer stressed
- He had more time to enjoy himself
- His three remaining properties paid him a decent income, enough to mean he wasn’t reliant on working for a living
As you become a more mature, sophisticated property investor, your focus is likely to shift. You’ll learn that lifestyle is the reason for investing. You’ll want to spend more time with family and friends. You won’t want the hassle of chasing rent, or the stress of looking after a huge property portfolio. You’ll learn to measure your portfolio’s ROI by its ability to provide the lifestyle you want, and not by how many properties you own and their gross value.
This doesn’t mean you won’t add to your portfolio as suitable property investment opportunities come along, but that you’ll take a measured approach to building a stress-free sustainable property portfolio.
What is your real lifestyle goal?
When I meet with investors, I’m always intrigued to hear their goals. What do they want their investment to achieve for them? I’ve met with plenty who are earning £50,000, £60,000, £100,000 a year and more and have told me their goal is to earn double their current income within eight or ten years. Then I ask them why they want to earn that amount, and they can’t answer.
Let’s say that you are earning £75,000 per year. Right now, that’s enough for you to live on. You’re doing good. And as time moves on, your living costs are going to decrease when you finish paying the mortgage on your own home.
Instead of pulling a number from thin air, think about what you really want from your investment. How about a smaller, less stressful portfolio that paid you, say, half the income of your job in 10 years? You could quit your job, and find a new job doing something you love doing. Or work three days a week instead of five. How does an extra weekend every week to do with as you please sound?
It doesn’t matter that you are earning less from your work because the passive income from your property investment is making up the shortfall. And this is the real measurement of success from property investment: does it provide the lifestyle you want?
Keep your investment goals realistic. Think about what you really want from life. Do this, and you’ll be surprised how quickly you can achieve the lifestyle you want and deserve. The 3+1 Plan is how so many investors now live the life they want. They work less and have more fun, with a modest and sustainable property portfolio. You won’t hear these investors bragging about the size of their property portfolio – they’re too busy enjoying their passive income and extra spare time.
To discuss your lifestyle goals and the investment strategy that could help you achieve them, get in touch with Gladfish on +44 207 923 6100. We’ve helped hundreds achieve their lifestyle objectives with property. You could be the next.
Live with passion
Brett Alegre-Wood
