Why do I keep referencing “tree” on this blog website? And not just any tree. A money tree. It’s time I spilled the beans….
But first, a quick reminder that I run this blog with the primary aim of helping Landlords optimise the financial performance of their investment property. How do I do that? Simply by writing blog posts which teach financial skills and knowledge which can be used Landlords to make your property, make YOU money.
Yeah yeah, I get it. Property Finance knowledge. But why reference a tree?
Well a tree is the perfect analogy of the financial performance of an investment property.
Trees are big sturdy things that, if well maintained, last for years. Think of a grand oak tree. Trees are everywhere. They are constantly growing and changing in different seasons and require external factors like water, sunlight and soil to grow and thrive. In the right conditions trees produce leaves and some even bear fruit.
Does that sound like an investment property?
Let’s break the tree down (not literally):
Mindset: If you own a tree (investment property) you need to firstly acknowledge you own a tree. You can’t just sit back, forget you’ve got a tree and hope it drops food through the front door every month. Don’t say it (money doesn’t grow on trees)!
Roots: Any healthy tree is supported by strong, reliable roots. Financial performance can’t be optimised without having good financial data (the roots) available to rely on, that you can analyse and then used to make strategic decisions which make your property, make YOU money.
The tree itself: A tree trunk and branches is like a balance sheet. A snapshot of your net worth in that property. Usually an asset (house) less a liability (Mortgage). It needs to be strong and healthy in order to produce leaves and fruit.
Leaves: A healthy tree should produce leaves. An investment property should produce profit. You don’t eat the profit/leaves of course, but it’s a sign of good health and important factor in the financial performance of your property.
Fruit: The end goal for any healthy tree, producing tasty and generous fruit for you to eat. This is like cash which you can consume (not literally), but in the sense that it can pay your bills, income stream etc. It’s the tangible end result.
How do you give yourself the best chance of your tree growing more fruit (money)?
If you had a tree in your garden and wanted that tree to be as healthy as possible, and produce juicy fruit year-on-year, you would take an active interest in that tree.
In fact, you’d get yourself the best garden shed and toolkit around and use that to lovingly tend to that tree. You’d know that tree inside out, branch by branch, leaf by leaf.
An investment property is exactly the same. You need a powerful financial toolkit to help it thrive. That toolkit would enable you to know just how strong the tree trunk is. How many leaves exactly are you growing each year. What branch provides the greatest ratio of fruit. Do some branches require trimming? Only by knowing everything about that tree (property) will you know if you can enhance the fruit it produces.
Perfect. My tree is covered in fruit (money). What do you I next?
That’s depends on you. Maybe you want to grow an orchard. Maybe you have too many trees (properties) in your garden (portfolio).
Perhaps you have just the right number of trees, but you can trim some of the existing branches to produce more leaves or fruit in future years. How do you predict future years? These are similar questions Landlords face (Refurb, Refinance, Streamline, Tax efficiencies to name a few). Luckily your newly acquired financial toolkit skills will put you in the perfect place to make these strategic decisions so you maximise the financial performance of your property.
Love it. So I’m done right?
Not quite. I said at the start you can’t ever fully sit back and relax if you want consistent and high quality fruit (money). You have to work for it.
The tree will need watering. It may need weed or insect killer applied, or nearby trees trimmed back to offer more sunlight. Trees are ever growing and changing which is similar to property. Think new tenants, enhancements or legal regulations over the years.
Saying that, you don’t want your entire life to be spent watering and watching your tree. You wouldn’t have time to enjoy eating that lovely fruit.
Which is why you need processes, systems and controls in place. These ensure your tree (property) receives the love and care it needs to reap fruit, but in a time and cost effective manner for yourself. Automate manual processes. Be efficient. Be effective.
You are the proud owner of a tree. Give it some love and enjoy eating that fruit!
Does that Tree analogy make sense or am I talking nonsense? Be great to get your thoughts…