In my last two blogs, I helped you figure out if these investments are personal or financial to help narrow down the purpose so you then could ask the questions that would help you understand what is needed in order to be successful. In this 3rd series, I will give you the steps and some facts to help support your decision on whether this property is a good investment.
As I have said in the past, I am not a financial advisor, merely someone that is in the field of real estate. I personally buy investment properties, so I speak from my own personal experience. Observing others buying and selling properties gives me some inside knowledge of the do’s and try not to do’s when it comes to investment properties including personal homes.
There is always an opportunity to buy in on a great investment. Regardless of what society, friends, or family may say. Risk is in the eye of the beholder. I’m not sure if anyone has ever said that, but I would like to coin that first. Each person has their own risk tolerance and these steps will help define what yours may be.
Many great companies and organizations out there participate in what is called “Risk Assessment Outlook”. Each company has its own set of guidelines and threshold of risk tolerance, and we should too. Banks and financial institutions use them to assess the safety of the financial structure, data breaching, and user privacy. Health Care uses them to detect, report, and correct health risk factors. Schools use them to help protect the staff and students. Governments use them to help control risk of potential threats to the individual countries and to the world. There are far many other places and businesses that also do risk assessments as well. There are two main reasons risk assessments are used. First is for the safety of human and animal lives and rights. Second is the monetary stabilization and social impact.
I have seen firsthand how the actual work is completed and it is quite amazing. There is a lot of detailed work that goes into discovery, methods, theory, and then planning measures to help protect against the identified risk. So not only are there the identified risks, but like I stated in my last blog, there are unidentified risks, the unknowns to keep in mind as well.
These assessments keep business, governments and companies on alert for potential loss. It also allows them to pre plan steps IF that risk appears and then helps them jump into high gear to correct it timelier to get back to normal and with less impact. Risk is out there. Businesses see that and they take approaches and measures to ensure their success. We could take that approach and do the same for our personal lives. Not only for financial gains but for our overall WellBeing.
When trying to figure out if something is a good investment such as a house, location, career, or relationship, we need to look at the key drivers. Financial, WellBeing and sustainability. Look at each one.
When looking at the financials: Can I afford this? Does it have income potential? What is the IRR or ROI? Will this give me equity and how long before it does? How much am I willing to lose before cutting my losses?
When I look at WellBeing: Does this investment give me the LifeStyle that I want or need? Are my long-term, or short term goals worked into the equation? Do I still have my freedom? How do I measure my happiness? How will I know when it doesn’t feel right anymore and what plans are in place to ensure I can back out?
When I look at sustainability: Does this work with my income and the expenses it incurs? Can this self-sustain? Is this efficient? Am I using measures and correcting systems to achieve optimal usage? What parameters are in place so I know that I’m living with sustainability and efficiency as a priority?
You may not get all yeses on these questions. Look at all the data. Make a risk assessment on each section. What do you see as potential risk factors, IF you buy/keep this investment? What would be the steps to correct if/when risk presents itself?
Again, you can’t just buy these properties and think that you can take your hands off. You need to keep track of what it is actually costing you. That’s not just money either. Where can you make improvements to save and be more efficient? You need to keep re-assessing. Does this still work for me?
Instead of asking a broad statement of, “Do houses make good investments?” Ask yourself, are the risks worth the reward? Is this something that I can financially take on, love the experience that it allows me to be in, and have the sustainability to keep going at this pace?
Homes should be a vehicle to “house” your dreams. Not be your dream house. Experiences are what make people happy, feel content, and sign deeply at “this is enough”.
If we look at each investment, no matter what the investment is, homes, careers, locations, cars, relationships and businesses. Apply these questions, look at the Risk Assessments, and then make a plan to execute. Plus, a back up plan for a fall out. Having a fall out plan is not a bad thing. It’s like giving yourself permission to concede to something that isn’t working. That doesn’t mean you failed; it means you tried. You can try again, now with new knowledge and understanding.
Realize that life has no certainties but we do have the ability to adjust or correct. You may have found out you made a bad investment. You can correct that but it will not correct itself. The longer you put it off only puts you further from your goals. Take action. If you are just starting out and interested in investment properties or homes, or another investment, start. You may make mistakes but it’s better to be out there learning and building than looking back and saying, “I should have done that 10 years ago.”
The answer to this big question “Are houses a good investment?” All I can say is, use your tools. Ask the questions and do it for the right reasons. When it doesn’t feel good anymore, it’s not making the money you wanted or needed, it costs too much to keep it, or the risk isn’t worth the reward anymore, cut your losses and make a plan to reinvest elsewhere. In my book, a bad investment only makes a bad investment if you keep it.
LTD has partners and resources that can help guide you towards your goals. If you don’t know where your life balance is, go to lighttouchdwellings.com and take a free assessment to show you where you stand. You can follow us on FB and Instagram.
Facts and data are what drives great companies, businesses, and countries ahead. True data doesn’t lie, it helps you make confident decisions that can propel you towards your goals. All that is needed is that you decide to spend as much time planning, asking, assessing factors in the same manner that businesses do to get ahead. We use this approach everyday in our businesses, let’s start doing it in our personal lives.