Solving the Property Investment Puzzle

THE SIX STEP PROCESS

Sustainable Wealth Creation

Investment Strategy

Property Selection Process

STEPS

GOALS

NOW

PLAN

OPTIMISE

IMPLEMENT

MANAGE

Click on the tab headings below to find out more about the 6 Step Wealth Builder process.

What are your goals for achieving wealth through property?

This step is about establishing goals and the time frames required to achieve results.  It is about clarifying what’s important to you now and for the future.  It is about answering questions around your need for cash flow versus capital growth.  It’s about exploring the end you have in mind, whether this is early retirement, financial security in later years, leaving wealth to the next generation, other …….

It is worth noting that:

  • Goals aligned with your core values are the most energising – a must for success
  • Well defined goals are SMART – Specific, Measurable, Achievable, Realistic, and Time bound
  • So many people go through life without clear goals – so they get mixed results.
  • An example of a clear goal is “to have $2,000 per week passive income from property in 10 years time”.

What is your current situation in relation to where you want to be?

This step is about completing a fact finder to establish the current baseline and starting point. So, having set your goals it is then very important to take stock of where you are now financially in relation to where you want to be. It’s about identifying the gap to be closed through saving and investing. The key to this step is knowing all about your current financial position – your personal balance sheet, profit & loss statement, cash flow, and your capacity to borrow to invest.  The fact finder is also designed to explore your risk profile (attitude) and risk appetite (tolerance) to take action because it has been shown time and time again that our psychology around risk determines what strategy works best for us, and this can be very different from person to person.

It is worth noting that:

  • This step is a “reality check” by making sure we have all your current facts and figures to work from
  • Net wealth is the difference between your assets and liabilities (debts)
  • Net cash flow is the difference between your income and expenditure – your savings capacity
  • Being market ready involves up to date accounts, tax returns and no outstanding tax bills; knowing what your borrowing capacity is, and,
  • Having appropriate investment ownership structures in place

How will you close the gap between where you are now and where you want to be?

This step is about creating and documenting a plan to model outcomes that will achieve the required result in the desired time frame. There are many things to consider at this point and the planning starts by determining what overall strategy will realistically work best for you, given the goals and timeframes identified in step 1, and an understanding of your current situation as per step 2. Having considered gearing levels, styles of property, ownership options, capital growth rates, required rental returns, holding costs and so on, initial cash flow modelling is done using real property examples to get a realistic picture of what is possible.

It is worth noting that:

  • Property types – each have different risk and return characteristics
  • Risk profiling determines what strategy works best for you
  • Investment risk can be mitigated through a portfolio approach using diversification
  • Gearing has the potential to magnify losses as well as gains
  • Taxation and asset protection will vary depending on what ownership structures are used

How can your plan be optimized to provide the best investment performance possible?

This step is about using optimization strategies to enhance the results of the plan.  This is primarily done through cash flow/capital gain modelling of a selection of current property opportunities in various markets and economic situations.  Research and analysis tools are used to compare and contrast what will work best for the client, within the context of their risk profile and appetite to take risk.

It is worth noting that:

  • Visual and numeric tools show clients a virtual “try before you buy” cash flow of all the estimated income and expenses required to own the property
  • The modelling is significantly more complex where a portfolio of properties is involved
  • Care is taken to get a factual rather than opinion based understanding of all the issues and opportunities to be considered in the optimisation process
  • Independent research is vital to making impartial and unbiased assessments of the opportunities available

What specifically must you do to implement your investment plan?

This step is about implementing the plan using the appropriate investment structure to maximize the opportunity and starts with the outcomes of the planning process being documented in a SOPIA (Statement of Property Investment Advice). This becomes your personal “business plan”, and just like in business, this document is used to determine what specifically needs to happen, by whom, and by when to implement the advice received. And the SOPIA forms the basis for monitoring progress to plan, and when necessary, taking action to stay on target.

It is worth noting that:

    • The SOPIA will provide you with a selection of properties to choose from that are aligned with your investment goals
    • It is important to consult your tax adviser before making a final decision on the asset ownership structure
    • Implementation will involve the coordination of a number of other professional advisors including mortgage brokers, lawyers, conveyancers, accountants, insurers, property managers and real estate agents

Your Forrester Cohen Advisor is there to help you with project coordination to settlement and the securing of an appropriate tenant

What is involved in the ongoing management of the investment property throughout the holding phase?

This step is about putting a management plan in place to protect and manage assets and risks. So, purchasing and settling on a property is not the end, but instead, could be thought of as the end of the beginning of your investment journey. At this point, you have completed the acquisition phase and move into the holding phase where ongoing management becomes very important. Given that property investment is a long term wealth creation strategy, it is likely that changes to your personal situation, the economy, and the law etc will occur during the time frame involved to reach your goals. And, many of these changes could affect your ability to continue acquiring properties, hold them, or exit your position as initially intended unless you work through the 6 step process shown, at set review points or as the need arises to keep on target.

It is worth noting that:

  • Your Forrester Cohen advisor is there to provide you with ongoing mentoring and support to ensure you are successful
  • Formal reviews with your advisor at least annually will mean your plan remains current as progress is made and economic and other circumstances change.
  • This will involve cycling through the six steps of the Wealth Builder Blueprint model and update your plans after checking what has changed, what is steady, and what is new