Investment is a game - and like most games there are winners and losers. However, unlike most sporting games being a property winner does not mean that the entity you are buying from, renting to, or selling to has to be a loser. Property investment does not need to be a zero sum game. Indeed it can and should be a Win/Win game plan where all parties to the deal win.

So how do we win our own property investment game?

Firstly, you need your own written game plan. Be very clear on what your objectives are. But be a little bit flexible with the actual game plan. Be aware that markets change, your life changes and what was a successful strategy for you in the past may no longer work or be appropriate for you now. Successful investors change their game plan as required.

However, like most games the investment game is about getting the right numbers. And a win for you will be hitting the magic target numbers that you defined as part of your investment success strategy.

At StreetSMART we usually start with the end in mind – which for most of us is financial independence. We define financial independence as “having enough money to do what you want to do, when you want to do it, without going to work unless you choose to”. Yes, we are talking about financial independence of work.

So working backwards, lets say we need $100,000 annual passive income to live the lifestyle we aspire to. That means we’ll probably need net equity (excluding lifestyle assets such as your own home, bach, boats etc) of between $1.5m and $2m invested in income earning assets to achieve that goal. That equates to between 5% and 6.67% pa net return on income earning assets - a long-term conservative, low risk, achievable return.

The next step is defining the time frame. The shorter the time frame for achieving financial independence then the higher the price to pay to get there. Alternatively, the longer the time frame the easier the goal will be to achieve, the fewer risks you need to take, and the more you can enjoy life while getting there.

Once the financial target and time frame are defined then it’s time to determine the appropriate strategy to get there. For those investors on wages and salaries the financial independence plan is generally focussed on investment strategies. For investors who are self employed or running their own businesses then the success strategy is usually more complex – often a combination of increasing business income and/or value of the business coupled with long term investment strategies. Sometimes investment in your own business will take precedence over other investments, at least at the outset. The investment strategy selected needs to be capable of delivering the desired result in the time frame desired, at a suitable level of risk (you need to be able to sleep at night).

Spreadsheets are a valuable tool for calculating the expected projected returns from different long-term investment scenarios. If you are not already spreadsheet literate then we strongly recommend that you develop these skills. Otherwise you could purchase specialised software set up for this purpose. The numbers are important!

If your proposed investment strategy does not seem capable of delivering the desired results then its time to re-evaluate:

• Is the passive income/net equity target too high?
• Is the time frame too short? 
• Is the investment strategy inappropriate? 
• Do you need to increase your earned income to provide additional investment capital? 
• Do you need to reduce your lifestyle expenditure to free up additional investment funds? 
• Is a more aggressive investment strategy is required? 
• Perhaps a combination of these factors is required?

Extrapolating desired investment results means we can clearly define the investment criteria we are looking for – for example perhaps the plan requires a real net yield of say 8% pa after tax, inflation and costs. If that is the case then perhaps the net capital gain after inflation averages out at 2% and cash yield at 6%, making a total of 8%. Once again working backwards we can calculate the gross cash yield required to net 6%, and look at various strategies that can be employed to increase gross yields.

Gross yield calculations are an extremely useful tool. The calculation measures the gross return of the investment before expenses. For example, if a house costs $280,000 and would rent for say $300 a week the gross yield assuming it is rented for 50 weeks a year is 5.3% pa ($300 x 50, divided by $280,000). If the house was fully geared then this property would be cashflow negative if the cost of interest was more than 5%, as other expenses such as rates, insurance and maintenance also have to be allowed for.

Working backwards we could consider ways that the house costing $280,000 could generate the required yield… could a minor dwelling be added? Could the basement be developed into a studio? Could the house be broken into several flats? Alternatively, what is the top price you can afford to offer on the property if the weekly rental income is fixed at $300? If we wanted a gross yield of say 9% then the maximum we could pay for the house would be $166,667 ($300 x 50, divided by 9%).

Gross yields are quick to calculate and enable investors to compare various investment properties opportunities. This reduces the time wasted looking at properties where the gross yields are outside their investment criteria.

It’s amazing what a positive effect thinking strategically has on your investment plan. By focussing on what we want from our investments (job, business, relationship and/or life), and writing this down, we make a quantum leap taking us that much closer to succeeding.