Want to add another product to your portfolio? Simon Calton explains how you can minimise mistakes.
In our now many years of advising, helping, fixing and developing property and alternative investments, we have seen copious amounts of mistakes – we’ve made a few ourselves to be honest. We don’t think you can be a seasoned investor in this world without making a few errors.
It’s these mistakes that help to guide you in future transactions. These experiences can have both a positive and negative influence on your decisions as an investor. You must learn from these without letting them taint your view on any one particular offering. Just because one rental property is a nightmare doesn’t mean every real estate investment opportunity is the same.
To alleviate our clients’ worries about whether or not they are letting their experience influence them, we started to put a failsafe in place for our clients to fall back on – a set of rules and expectations that an investment should meet.
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In addition to this, most clients have one other wild card in the mix that you cannot account for and is just a personal preference. That could be location of offering, kudos of offering, or type of offering. Their decision for this is normally born from their own experience or experiences they have seen through their peers. While those personal preferences cannot always be accounted for, the following four questions can and should be addressed when considering your next investment product.
1. What is the experience of the company or people involved? What research have you done and what is their track record?
Research does not just have to be on the company itself but can also be done on the main leaders of that company. Be sure when looking at individuals involved to make certain those individuals are physically active and not just lending their name. Google the people and the company. Remembering to ask questions, not just jump to conclusions, when you read or see something online that concerns you. Finding a documented track record is also very helpful. If they have one and can prove their claims, then you are much further down the road to feeling secure. If it is a property investment, get a second opinion on what the realtor is saying to confirm their sales pitch.
2. What is the return on investment?
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When working out the return, you have to take all factors into account – what is the annual return and what is the capital gain? In addition to this you must work out your outgoings. This should include everything, including but not limited to accountancy, your time (your time costs money), maintenance costs, currency, and inflation. To not look at these outgoings could be your down fall and is the biggest mistake investors make, especially property investors.
3. How is your investment secure? Run through all ‘what if’ scenarios.
Security is very important and one factor that is often misrepresented and misunderstood. What is the asset? What if the market takes a downturn? Can you ride out a storm? How diverse is your portfolio at this stage? You may have too much money already in this particular area and one small issue could compound into a larger problem. Just because you hold deeds or a title does not mean that you are secure; you must diligently look at the situation and run it through a stress test.
4. What is your exit? And what happens if the market changes?
Your investment should have a defined exit, but also the ability to adjust that exit if the markets change. If a product Is a good one, it will offer multiple exit opportunities for you to protect yourself against as many eventualities as possible.
Stick to the above and you can better ensure a safer investment for your money. In almost all cases you will have reservations, which is normal. No investment comes without risk and you need to be at peace with this. But by calculating your risk to a certain degree, you can gain confidence in your investment and make the best decision possible for your portfolio.
Simon Calton is Co-Founder and Chief Executive Officer at Carlton James (https://www.carltonjamesgroup.com/) an investment firm that specializes in hospitality, property and technology.
