This week’s Steve-ism is:

“Start with the end, and end with the start”

There are two approaches to buying property.

The first is what I call the asset approach which is where you run around trying to buy what you think are good properties that will hopefully return a profit.

The second is what I call the outcome approach, where you set your desired profit (i.e. investment outcome), and then seek out a property that will deliver it.

Watch this short video to find out more about the differences between the asset and outcome approaches:

 

 

The problem with the asset approach is that it puts the property first, and the profit second. If you do this, then your future happiness depends on what profit the property can generate, which for most investors is not controllable and therefore speculative.

The outcome approach is much better because:

  1. It puts the profit first which will focus you on your investment objective
  2. With a profit in mind, you will now have a benchmark for what properties to buy (i.e. ones that are likely to provide the outcome you desire); and
  3. You will also have a benchmark for what properties to avoid (i.e. ones that aren’t likely to deliver your desired outcome)

“Start with the end and end with the start” means that before you begin looking for property, you should work out what you want from it (i.e. the end), and then once you’ve done that you should start looking for a property that is likely to return the profit you desire (i.e. the start).

What are you looking for in your next property investment – a good asset, or a good profit?

If you have a question or need some help then make a post below. Alternatively, you can browse what others are saying.

Until next time, remember that success comes from doing things differently.

Cheers,

– Steve McKnight

Comments

  2. Judith Ottosen

    It is vitally important to take the time to educate yourself first on what you need. There are always deals out there so you will not miss the boat but might save yourself heaps of heartache. Attending many of your conferences Steve, taught me this. Took me quite some time to work it out :)

  5. Ajay Ayyar

    Great video Steve – this really got me re-focussed on setting goals and working backwards from my investment goals rather than getting into ‘search and buy’ mode too quickly.

  6. Nicky

    Hi Steve, thanks for your video. I would really appreciate a real life example of someone’s desired profit, what property they bought to deliver it and then how it played out. It sounds great and logical but I do not really know how to apply it to my investing and I would like to know how to. A real life example may provide a missing part of the puzzle for me so thank you in anticipation. Some info about us so that the example you give us a within our reach – We have $50,000 a year that we use to buy a 3 or 4 bedroom houses around the $300,000 mark, give or take $25,000 (in Brisbane at the moment), 10% down, interest only loans up until now, 5.5-6% rental yield, on minimum 600 square metre blocks. Our end goal is to have $500,000 passive income per annum with our home on Sydney paid off ($960,000 mortgage). We own 4 investment properties and are in our late 40’s. Regards, Nicky

  7. Svetlana

    Thank you Steve! Interesting. Need to calculate some scenarios with different approaches.
    As I understand, asset approach based on the future expectations of higher price growth.

      • Lyn McKenzie

        It’s quite a long story Steve but in short that ’emotional’ thing is getting in the way of a decision I need to make. I have received an offer on one of the last vacant 2.5 hectare lifestyle blocks in quite a sought after area ( I didn’t have it on the market)
        It was purchased 20 years ago, not as an investment but to build/live on – which hasn’t eventuated. The price offered is slightly above fair but ’emotion’ is intruding on my decision making so your words of wisdom helped a little.

        • Profile photo of Steve McKnight

          I understand Lyn and can see how there would be emotional ties to the land. Perhaps a way to think through the issue is:

          Option A: What does my financial situation look like keeping the land? What is the annual cost? What maintenance is required? Does my enjoyment of the property outweigh the risk and aggravation?

          Option B: What does my financial situation look like selling the land? What could I do that I otherwise couldn’t? How much enjoyment would I lose?

          Could you buy yourself a nice keepsake to remember the land from part of the proceeds so you can remember the land? That might be a happy middle ground.

          – Steve

          • Lyn McKenzie

            Thank you Steve.
            While we didn’t consciously ‘start with the end and end with the start’ I am fortunate that in this case the start could have a good end. Decision time now.
            Thanks for sharing your wisdom.

  10. Sharon Ayris

    Thanks for sharing Steve. I agree with what others have said, you always have words of wisdom and it’s always great to sometimes reconfirm what we already know, but what we don’t always put into practice.

  11. Nani

    Thanks for this, Steve. In my opinion, asset approach is an easier way of doing things , as it is more on “Buy now and Fingers Crossing” that what we think will be will actually happen. It is, I think, an approach that most investors go for. Outcome approach is more challenging and requires more effort, but I think it is a better way in approaching an investment. As the saying goes, it is mostly about the Purchase and not the Sales that determines our profit.

  12. Profile photo of Narinder

    That’s very encouraging for a first time investor like me. Do you have any guidance on going forward strategy in terms of rental guarantee type of offers. They sound too promising but what happens if the is a breach eg the company disappears in a year or two?

    • Profile photo of Steve McKnight

      Hi Narinder,

      Rental guarantees seem like a good idea, however the can be a sales decoy to justify a higher price. Remember too that the guarantee is only as good as the person or organisation giving it.

      I suggest you ask what the price would be without a guarantee to see how much extra you are paying for something you may not ultimately need.

      If you are worried about the reputation of the organisation providing the guarantee then you can request a portion of your purchase price be held in escrow as a guarantee for the guarantee.

      Bye,

      – Steve

      • Profile photo of Benny

        Hi Narinder,
        Any firm that offers a rental guarantee has me want to check them out a bit more…. You see, I believe an investment should stand alone as a “good deal” and not require any arm-twisting add-ons to encourage people to go from a “Hmmm, I’m not sure!” to a “OK then – that rental guarantee has me feeling more comfortable”.

        Do check out any company that offers a guarantee against the items in this link to see where they stack up:-
        https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/page/3/#post-5038486

        It could be you are dealing with a good firm – if so, their ways should stack up in that column, and not as a “bad dude”. Though a Rental Guarantee can be an alarm bell, it is just one of several things to consider.

        Not everyone who offers a Rental Guarantee is a “bad dude” – but most “bad dudes” offer a Rental Guarantee.

        Benny

  13. Profile photo of Ryan

    Hi Steve great words. I’m new to the investing world and don’t own any property yet. I will be at your upcoming seminar for the first time which I’m excited about. Will there be any chance to ask you any questions in person after the seminar by any chance?

    Cheers Steve.

      • Ryan

        Ok no worries thanks for the reply.
        I think the main question I Have since being new to all of this is that I continually get told by people I know and banks that negative gearing is the best way to go atm. However that still doesn’t make sense. But as I’m told by more experienced people than me is that it’s now to hard to find positive cash flow property because of house price rises and rents not rising. Therefore if you negative gear how do you ever get more than 1 or two property’s? How do you really ever get anywhere. It would take ages on the hopes that you make a lot of money quickly in capital growth. But with house prices so expensive now and rents pretty much in line with the amount you pay for the house you can only seem to negative gear. Not to mention lenders making it harder for investors with higher interest rates etc it just seems negative gearing keeps popping up!

  15. Profile photo of Kelwyn

    Hi Steve,

    Great video thanks. Wife and I are in the early stages of getting into the investment property market, we have both read your book a few times and looking for suitable property in Queensland at the moment.

  16. Eddy Pettybourne

    Hey Steve

    My name is Eddy and I’m inspired by your work not only in property but how you use scripture from the Bible to describe what God wants for us and how to use us people to build his kingdom. So awesome. Just wanted to ask a question. I’m renting at the moment and have one investment property. I’ve got some assets in the property which will be refinanced. Wanting to ask if buying townhouses or dual key in a complex a good buy? I want to buy positive Cashflow properties but wanted to see what your thoughts? It’s in brisbane

    • Profile photo of Steve McKnight

      Hi Eddy,

      The best place to find positive cashflow right now is:

      a. All cases, reduce borrowings
      b. Residential – focus on multi-family rentals (google Ian Ugarte)
      c. Commercial property – do your numbers carefully

      Specifically, I would focus on townhouses over a minority of properties in a complex. Less hassle, more control, and better resale prospects.

      Bye,

      – Steve

  17. Phil Mizzi

    Hi Steve, doesn’t the outcome approach introduce risks of a different kind to asset approach? I can understand that the asset approach brings in risks of low or no capital (or negative ) growth. Also that rental yield would most likely be lower due to more popular or centralised locations.

    So with outcome approach of looking for something that meets your profit need (I’m assuming that means better price, better yield against price) wouldn’t they generally be properties in less desirous locations (I.e. regional ). Then that would introduce a greater risk against capital growth. In some cases extreme risk if they were single industry towns.

    Not challenging your concept, just trying to better understand it. Also get a better understanding of what constitutes profit (positive cash flow; lower cost to hold?) and where selling the asset comes in.

    Regards

    Phil

    • Profile photo of Steve McKnight

      I agree that different assets in different markets carry different risk. The point making a distinction of what comes first, the asset which derives the profit, or the profit that derives the asset. I would suggest setting the profit you desire, then locate assets likely to deliver it, then manage the risks to the best extent you can.

      All the best,

      – Steve

  18. Profile photo of Mianna

    Hi Steve,

    I’m a first-time investor and has been following your post for a while. Just have a question about the profit approach. How can I set a realistic profit in a defined time frame? With an unrealistic profit target, we may not find any property that fits.
    For example, I have 100K in saving and can access 500K loan. My target is to get 80K profit return in 2 years (80% cash on cash return). How do I know it is realistic or not?

    Thanks,

  19. Pece Najdovski

    Really enjoy your content and i have read your books 1 question I have what sought of cash reserves should I keep to accommodate things like house not being renteted when tenant leaves reapires property like I had pergola blow off on rental a plumbing problem with another and hot water system go on another all in a few months I had savings to cover it all but how much is enough for things like this and other things

  20. Profile photo of AndyGemmell

    Thanks, Steve. Impeccable timing and clarity here. I am happy to say the profit method has been top of mind yet I find the asset approach trying to nudge its way into your thinking or mind regardless. I guess this is where “buy to suit” vs “it suits me/us to buy Y”?

    Have to stay focused and diligent!

  21. Profile photo of STLCHUCK01

    Hello Steve,

    Thank you for the words of wisdom. The investment cycle you describe is the same as from my CCIM instructors: Acquisition, Holding Period, and Disposition (and the analysis that goes into each). All my best, Chuck

  22. Daniel

    Thank you, this is very useful – Do you think it could be a little of both too Steve? Giving up some profit in order to hold assets in locations that you believe in and feel comfortable with? For instance, the development margins and yields are lower in blue-chip inner city Brisbane locations, but I believe in the locations and am happy enough with the returns, although they are less than is possible further out. Keep the great content coming Steve, I find it invaluable.

  23. Profile photo of leon2685

    Thanks for everything, Steve.

    I suppose the main difference between the two approaches is whether create a clear investment and return model in digital. One is based on feeling, another is based on logic and data. Obviously, based on logic and data is more difficult for investors. The useful data generally is hard to be collected and analysed, meanwhile, the results of analyses are often against people’s common sense.

    So I would like to ask Steve if you can digitalise the ‘asset approach’, it can be acceptable?

  24. Profile photo of HarryCheema

    Thanks Steve,

    Reading your book at the moment. It’s helping me change a lot of the belief systems I had gathered along the way about property investing. I appreciate you sharing your wisdom with all of us.

    Kind Regards
    Harry

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