Your investing style is partly influenced by your holding capacity, but mostly influenced by your investing EQ towards property.
What is holding capacity?
In any economy, there are always upturns and downturns. It is during the downturn that everyone should be more mindful of.
During the downturn of the economy, jobs are lost and businesses are slow. The tenant (especially if it is a foreigner), might have to leave the country. If one is forced to sell the property during an economic downturn, it is not surprising for him to make a loss. Hence, your holding capacity is your ability to hang on to your property if there is no rental for 8 – 12 months on top of your personal and family expenditures.
What is your investing EQ on property investing?
Do you prefer to invest quickly, make a certain amount of profit in a short time (within a few months – 1 year or 3 years), and get out of the property market quickly (Type A)? Generally, you do not like to hold on to a property due to the hassle of being a landlord. Also, you like to make money, rather than holding on to the property. Your concern is how much money you can make out of the property in the shortest time frame possible. Sometimes, you might be afraid to hold on to the property because of the financial commitments that you have, or simply, you just prefer to have as little financial commitments as possible.
Do you prefer to hold the property indefinitely so that it can generate residual income for you, and you can leave it behind to your children (Type B)? Generally, you prefer to hold on to the property indefinitely so that it can generate residual income for you. You are comfortable with being a landlord, and are aware of what your responsibilities are as a landlord. You know the importance of having a tax agent and property manager (if you are investing in Australian’s properties) to manage your property portfolio and your taxes.
As a general rule of thumb, these 2 types of investors do not get along. Type A investors will bring up the fear of losing out in Type B especially during boom times because Type A investors will be making massive profits. And Type B investors will bring out the competitiveness, and worry warts of Type A investors who will realized that all they have is cash and they do not have any properties that will generate long-term residual incomes.
However, if Type A investors tries to invest the way Type B invests, he will become impatient, and get frustrated with the speed of making the profits, and also the responsibilities of being a landlord (sometimes, to the extent of becoming a landlord from hell). On the other hand, if Type B investors tries to invest the way Type A invests, it is either he misses the boat or he will become very stressed over making profits through selling the properties quickly (some of them might even have nightmares).
I think the best way is to be comfortable with your investing style. Type A and Type B will do well to learn from each other. But unless they can find a way to reconcile with their totally different styles of investing, just stick to their style and be comfortable with it.
[End of Part 2: Knowing Your Investing Style]
[Click here to go to Part 5: Finding the correct market suitable for your investing style]