Be good to money

Housing Market Written by John Bolton, Oct 21 2012

I’m not sure about BNZ’s latest marketing push. They’ve lurched from cute pigs to some sort of odd S&M with money. I’m waiting for a hot banker to tell me I’ve been naughty and whip me! Maybe they could use Debrah Lorenzana who was sacked by Citibank for supposedly being too attractive. However, I do like the phase “be good to money and it will be good to you”.

Put simply, spenders don’t get rich. My wife would retort that scrooge’s don’t stay married. What we do agree on is that people who don’t set goals and don’t take action, don’t succeed, and so don’t get rich either. You’ll always hear people say, “do what you are passionate about”, or when reflecting on their success say things like “the money came later.” In a nutshell you make money by doing something other than “money” extremely well.

For successful people, money was never the focus. Too many investors focus on money. That’s why almost all self-proclaimed property gurus are at their core, con artists. Going to a property seminar is almost like going to a Christian revival meeting. That said, the property circus, as I like to call it, is a successful business model. It sells gullible people the secret of how to get rich.  Even better, it sells the secret of how to get rich without working! Save yourself some money. If all you care about is getting rich you might contemplate doing property seminars yourself.

It’s easy to be a property guru. You just need to read a few of the thousands of books available. You need to look confident, and openly and publicly lament the deals you’ve done. Then find some gullible people and charge them $12,000 each to learn your secrets. Easy.

Investing in property with a purpose is different to investing in property to get rich. Do successful people do amazing things with the goal to get rich? No. They do whatever they do, because they are passionate about it. So what’s your passion? What is it about property that really excites you? Do you do a great job of it? Do you provide a remarkable product? Do you have a plan beyond buy anything and leverage? Do you work hard to buy the right properties? If you buy old properties, do you put in new switchboards to reduce the risk of electrocution or fire? Have you put insulation into the roof and floor of all your rentals? If you are trading a property, do you fix things up properly or just paint over the cracks? Are you making the world a better place, or do you pay lip service to being a good citizen? What are your goals and investing principles? Is it to own a certain number of properties, or do you put some wider parameters around it?

I had an IT software engineer guy come into my office the other day to talk about trading property. I told him he was nuts. Here was a guy earning over $200,000 per year thinking about investing his spare time trading property. He was at a fork in the road and trading looked like the easy path. As if trading property is easy. It takes a huge effort to find deals that work. Most traders I know are lucky to make $150,000 a year doing it full-time. They do it, not by choice, but because they can’t do anything else that would generate comparable income. The numbers are also deceiving. When you trade property you pay tax and GST on your profits so lose 50% of any gain. The principles of good business are the same in all industries. Cash flow is king.

If you build repeating cash flow, you create value. Time is a scarce resource and you need to move beyond relying on your own efforts. I love IT because it is like virtual real estate. If I were in the IT space I’d work 60% for a wage and I’d invest 40% of my time as sweat equity in start-ups. Not everything would be successful so I’d spend my time upfront working out the best way to invest that time and clarify my investment criteria. Getting that right project could be worth millions.

The same is true with brands. Build a brand (marketing, systems, processes) and it can create cash flow. A brand is an investment and the eventual payout (when you sell a business) is tax-free. There are plenty of success stories out there of Kiwis making excellent money from building businesses. You just won't hear about them at a get rich quick seminar. If property is your passion, then great, but make sure you are exceptional at it. If it isn’t, then don’t let property distract you from your goals. She can be a demanding mistress.

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