Wealth Creation Concepts – What do you need to succeed in property?

Posted by Mark Lloyd, Property Mastery Academy on 24 July 2017 | Comments

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This is one of the fundamental questions I ask all of the budding property entrepreneurs who want to start building their property empire – and yet very few have really though it through! I get many very simple explanations such as:-

1. Because property makes money! Not if you bought in 2008 it didn’t
2. Capital growth – also not if bought in 2008
3. To achieve financial freedom – which means what?
4. Etc etc

I rarely get a sensible answer, so in this article, I want to talk about some basic wealth creation concepts.

The starting block for any business is a well thought out business plan – the how and why of what it is you are going to achieve. The business plan that we use on our Mentorship programme is for the next 5 years but then broken down into bite-sized chunks. If you are not sure of what it is you want to achieve then start with a simple S.W.O.T. analysis.

What are your skills?

swot analysisStrengths – what are your strengths and the strengths of your proposal?
Weaknesses – what are your weaknesses and those of your proposal? i.e. what could go wrong
Opportunities – what is the opportunity that you see? What is your USP (Unique Selling Point)
Threats – what potential threats are there that will affect your success and the success of your enterprise.

Spend the next 10-15 minutes jotting down your initial thoughts under the above headings and come back to them later.

Wealth creation can be broken down into four main areas:-

1. Compounding
2. Income and Expenditure Flows
3. Debt management
4. Diversity

Compounding

Einstein said that compounding is ‘The most powerful invention of man’. Why is that? How does compounding work in property?

Let’s take a property at £100,000 and see the effect of compounding over a 20 year period based on 8% average per annum

Start of Year End of year

£100,000 £108,000
£108,000 £116,640
£116,640 £125,971
£125,971 £136,049
£136,049 £146,933
£146,933 £158,687
£158,687 £171,382
£171,382 £185,093
£185,093 £199,900
£199,900 £215,892
£215,892 £233,164
£233,164 £251,817
£251,817 £271,962
£271,962 £293,719
£293,719 £317,217
£317,217 £342,594
£342,594 £370,002
£370,002 £399,602
£399,602 £431,570
£431,570 £466,096

You do not get this effect with ANY other asset class!
Note: Read the Compound Effect by Darren Hardy – it will blow your mind!!!

Income & Expenditure

Every successful entrepreneur controls their expenses and every entrepreneur has made sacrifices when they’ve started out in business. You may already be a successful business person or have a high-paid job but whatever your current situation, do not try and compare your current income to what you want initially to achieve from investing in property.

Look first at your expenses – are they nice to have or need to have – whittle them down. If you truly want to change your current state, your current situation, then you need to review where you are and establish what your True financial freedom figure is.

FINANCIAL FREEDOM = PASSIVE INCOME LESS EXPENSES > £0

Passive income in this context would be your income from property. So, when this exceeds your living expenses, you will then have achieved financial freedom and never need to work again. You will be at a stage in your life where you finally have a choice – to work or not to work, keep your job or leave your job, keep your business or sell it.

Actions:  Write these down now:

1. How much do you REALLY need to live on?
2. Nice to have – or NEED
3. Analyse your monthly expenses – can you save by switching to an alternative provider?
4. What is your true financial freedom figure?

Remember, the Financial Freedom figure is unlikely to be the same as your current earnings. What you want to achieve as an income from property is not the same as your financial freedom figure.

Debt Management

Unless you have a substantial amount of cash to start your property business, then you will need borrowing of some kind. It is therefore ESSENTIAL to monitor your credit score.

There are 3 main credit reference agencies used by the banks/lenders:-

Call Credit
Equifax
Experian

They all offer subscription services and some offer the service for free. It is essential to monitor your score as it will affect your ability to obtain lending.

Learn the difference between Good Debt and Bad Debt.

Good Debt helps puts money in your pocket – for example a buy-to-let mortgage. The rental income pays the mortgage.

Bad Debt takes money out of your pocket – for example, credit cards, car loan, mortgage on your home.

If you have credit card debt, always pay the highest rated interest first then compound that payment onto the next card etc etc, and always pay more than the minimum payment each month as lenders look out for this and assume that if you’re only paying the minimum then that is all you can afford.
Remember this: NEVER borrow to spend EVER – only borrow to invest.

Mark Lloyd is co-founder of Property Mastery Academy, a company that educates property investors. For more details of the courses they offer visit: www.propertymasteryacademy.co.uk