By Cam McLellan
I was recently asked what the difference is between myself and those who are still great with general life but don’t ever acquire financial freedom. After thinking about this for I while, I realized it’s because I find it mentally easy to absorb a setback. In fact I love a road block.
In the early days of building my portfolio I came up against some big setbacks that most people would probably would have decided was the sign for them to give up. A common one would be the fact that buying a property takes around 200 hours. Those 200 hours include taking on setbacks and going through and overcoming them.
When I went to arrange a loan for my very first property it happened that I had just accepted a credit card (with a max of about $2,000) that the same bank had been promoting to me. I visited my broker to sign the contracts on mentioned property and was told I was going to be rejected for my loan because of my new credit card. The reason? Because any credit card you hold, will be considered as maxed out (whether it is or isn’t) and therefore reduce your debt service ratio.
So in order to make sure I didn’t lose the property, I had to scrounge around and hock off a few things to pay off that credit card and apply again for my loan. From my experience, a lot of people would have been overwhelmed by this situation and thought, I’ve got a credit card, the bank have said no, I’ll just let the contract fall over and I’ll worry about it in six months’ time. They of course never do and months turn into years, and that credit card debt gets bigger and it all becomes too hard.
Once I got to my third or fourth property, I purchased the latest model SS Ute. I think at the time the Ute was probably valued at twice what my annual salary was. Once again, off to the bank I go to get a loan for my next property and I’m told, sorry, your debt to service ratio is not adequate – loan denied. Although it broke my heart I went and sold that Ute and brought a 10 year old Holden Acclaim to drive instead. My friends could not believe I’d made this decision, and I definitely copped some flak for it. But with the money I saved on repayments I could hold another three or four properties. This was a prime example of delaying gratification for long term gain.
The lesson I learned from these experiences was, if there’s something in your way work out how to fix the situation and keep moving forward. If you expect that things will get in the way, it’s how you deal with these issues that make the difference.
Another problem most of you will come across in your property investing journey is valuations. My business partner Al had a problem with a valuation recently. After believing one of his properties to be valued around $470,000, he went to the bank and asked them to value it also. The bank came back with a valuation of $410,000 – $60k, that’s a big difference. He challenged the banks valuation, engaged another valuer and the next valuer came back $470,000. Same house, different week, the only thing that had changed was the person valuing it. If you were a first time investor this could have potentially been a major setback, but because he challenged it and pushed forward he received the outcome he needed.
I guess the point I’m trying to make is at some point there’s going to be something along your journey that is a barrier. If you’re a first time investor it might be that you’ve got a credit card and so you can’t get your finance. It might be that the first offer you put in on a place gets knocked back. With the right systems in place and a positive attitude anyone can be a successful investor.
So bash down those barriers, plough forward and find a way to make it happen because if you really wanted to it’s going to.