06 Mar Long-Term Investment Strategy – How to Do It
Long-term investing is as much a mindset as it is a strategy. In fact, even those with one or two properties can adopt a long-term investment ethos and put themselves in a more effective mindset, and therefore a more effective position.
This becomes more obvious when you consider, not only the investments you have at the moment but also what your long-term plans are for them. Where short-term thinking focuses on the investments themselves (meaning that possession of the investment is enough), long-term thinking considers how the investment is made up at the moment, and what you can do to maximise it over the medium and long-term.
Let’s take the example of a single property that an investor is living in. While they may not categorise themselves as an investor, with an attitude of long-term investment it quickly becomes obvious that certain actions can be taken to transform a single property into a manageable and sustainable portfolio. By considering the various elements of the property from a financial perspective, an astute investor can consider what actions need to be taken in order to optimise the existing property. These elements may include:
– Existing equity in the property.
– The structure of the current mortgage.
– Any guarantees, or plans for the existing financial structure.
– Any plans to improve the property, thereby increasing the value and the equity available.
The investor can then put in place timelines for the next 5 to 10 years. This will include benchmarks to be reached, and actions to be taken. Examples could be that at a certain date the value of the property will be reevaluated, and a second property purchased using existing equipment. Or perhaps an extension will be added to the property that will add a (researched) additional value to the property, and that equity will be used as part of an existing cash flow strategy.
Importantly, long-term property investment isn’t just about buying more property – it involves strategically considering where you can allocate funds to pay off your mortgage as quickly as possible. This could include taking out an investment loan using latent equity in your property, and using the profit gleaned from this to assist in paying off your mortgage faster. After all, it would be financially irresponsible for any educated investor not to reduce their debt while increasing their equity.
With a long-term focus, it’s not complicated to see that an astute investor can put themselves in a position where a mortgage-free retirement is entirely possible, if not likely. However, the mindset shift from short-term to long-term is crucial, and if this step is not taken, then not enough actions will be put in place to realise this lofty aspiration.
The first step is to look at existing resources and consider whether they are allocated effectively. Take advice from educated professionals, and trusted advisors and put yourself and your family in a position where you can look forward to a debt-free future.