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The 2 Questions That Could Determine What Type Of Investor You Are (Or Want To Become)

There are many uncertainties when considering property investment: where to buy, how many properties do I need, do I buy established vs off-plan, what type of investor am I, the list goes on.

But if you start with the end goal in mind and invest strategically, you’ll not only work out what kind of investor you are but also how far you can go. First, you need to ask yourself, what are your needs – both now and into the future – what is it you’d like to achieve? This assists in determining the type of investor you are and what it will take for you to achieve your goals. Then you need to create a property investment strategy based on these needs and the type of investor you are (or want to become).

To help you decide what type of investor you are, you should start with two questions:

How comfortable am I with investment risk?

How involved in my investment strategy do I want to be?

The first points to your understanding of risk versus reward (return). When considering your preferred level of risk and return, timeframe plays an important role. The second determines how active, or hands-on, you are in your property investment journey. Generally, life stage plays a strong role here.

We’ve identified three types of investors that we typically see on the property investment spectrum:

You’re new to investing. You’re a wage/salary earner. Your life up to this point has been about establishing yourself or your family; consumption-oriented strategies; saving for holidays. You may be living from paycheck to paycheck. Your company contributes to superannuation for you. If you own a home, it is your primary residence. If you’re thinking of buying a home – it’s to live in.

You haven’t yet started to think about investing as a long-term strategy, but you are starting to realize that you are responsible for your financial future…and you have yet to work out what that looks like.

How can I avoid living paycheck to paycheck?

What would it be like to have another source of income to make you more comfortable?

What could my savings and investment plan look like in 10 years?

Could I invest rationally, versus emotionally?

How can I become financially independent?

Passive Investor

As you grow and mature you begin to take on more responsibility. You’re working hard to make money and save money. You’ve done your numbers. You research the property industry and follow the media. You believe that you could take the next step…but you simply don’t have the time, out of your day job or life, to focus on this 100% or manage this yourself.

The passive investment strategy is good for people with busy lives, families, jobs, outside interests, or entrepreneurs building businesses. Let’s face it: most people’s lives are already full leaving little time for developing investment skills. It is difficult to make investing a top priority despite its financial importance.

A common result of this time limitation is passive investors often delegate the responsibility and authority for their investment decisions to “experts” such as financial planners, brokers, property consultants. Rather than become their own expert on investing, passive investors typically rely on other people’s expertise for their investment strategy. Their defining characteristic is the need for simplicity.

Active Investor

You’re a seasoned investor. You’ve built upon your passive investor skills and are now transitioning to a new investment strategy, whereby your wealth and your future is your own business.

You are now fully in control of your portfolio; you make daily decisions based on your learned skill set. You follow the market, and you manage your cash flow accordingly.

Active investors work hard at making their money work for them as they understand the end goal is all about return on investment. Small differences in growth rates over the long term can make large differences in wealth accumulation.

So you know what’s involved and what to expect. You expect results, and you’re open to advice… after all, you have an investment plan in place.

Active investors require a different level of service and support. Less time spent on why to invest, and more time spent on how and where.

This article has been sourced from The Property Investors Alliance

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