Alternative Investing VS Traditional Investing
In this episode, we compare the differences between alternative investments vs traditional investments. In Australia, we only know one or two ways to invest and it’s what we call traditional investing. However, when I ran out of “traditional” options and the banks stopped lending me money, I had to look at alternative options. What I discovered when I went looking, blew my mind. Watch and find out.
0:00 – Introduction to Alternative Property Investing
2:02 – Property Investing for the Average Australian
6:17 – My Journey into Alternative Property InvestingRead More
9:25 – The Benefits of Alternative Investing
12:31 – The Right Type of Investors for Alternative Investing
16:50 – Wrapping Up
We continuously work hard for long hours to save enough money for a house deposit. Even when we qualify for a deposit, it’s not enough to live financially free.
I’m going to show you how we could be living financially free by having alternative investments.
This may sound unfamiliar and daunting at first although it doesn’t necessarily mean it’s risky.Read More
We’ll be doing a deep dive into the playground of the ultra-wealthy, and explore alternative investments for those that are looking to:
- Create intergenerational wealth
- Build a high yielding investment portfolio
- Achieve early retirement as a business owner
So let’s get started and learn how alternative investments can change and grow your property portfolio for a more financially free lifestyle.
What does property investing look like for the average Australian?
If you’re Australian, you know what I’m talking about!
Our real estate market is nothing like the U.S. or other countries. Housing prices are significantly higher, and this means for the average Australian, it’s one of the biggest hurdles to overcome.
Back in the day, most Australians embraced wealth creation by getting their foot in the door by buying their first property. Once you’re in, you can refinance to buy another property, and this process would repeat.
However, currently this would be much harder to do due to more restrictions banks and governments have made.
One key limitation of borrowing infinitely is your own personal income.
Without a high income, it’d be tough to convince the bank to lend you a generous amount of money since deposits are ridiculously high! This is one of the reasons why I went into alternative investments.
So this is what a lot of Australians do – they’d buy property after property, hold onto them for several decades before they’re able to hit the right capital balance to live off of it. The other preferred outcome is that the capital base and assets are producing enough income that you could live off it much sooner.
In reality, what I’ve learnt from others is that you’re still miles away from becoming financially free.
I know of people that have invested in property for over 20 years and still haven’t achieved their end goal.
My advice is to try alternative investments and seek opportunities there.
Imagine holding a great quality one million dollar asset in Australia without debt, and at best, you earn up to anywhere between 1 – 3% net after expenses.
This, on one hand, is awesome from the viewpoint of building capital.
The bigger the numbers, the bigger the gains.
In Australian terms, a 3% increase of a one million dollar property is just a large amount of capital to be accruing each year vs the cash flow, which is completely rubbish, to be honest.
This sounds fantastic to the average Australian because our property market represents amazing value in terms of building capital.
But at some point, you would want your property portfolio to deliver you positive cash flow, it doesn’t necessarily work.
So what the industry tells investors is to buy more property, and this ends up putting you back to square one.
Turning to Alternative Investments
In 2009, I hit a wall with the banks.
Prolific investors like myself wanted access to more capital to continue to invest.
However, banks were becoming more conservative here in Australia.
At this stage, most investors would either sell down and take some profits from the capital gains or simply accept that that’s the ceiling when it comes to property investing.
Instead, I started asking myself “what else?”.
What else is out there beyond traditional investing options that I can tap into? So I began to look into the overseas markets and what I found left me gobsmacked:
The market was different.
The metrics were different.
The relative cost to buy versus the income stream were different.
The ease of getting access to finance was different.
Relationships with tenants were different.
American Real Estate as an Alternative Investment Opportunity
I spent a lot of time researching in overseas markets.
What got me excited about the strategies in the American real estate market were two things:
- The entry price to buy was significantly lower compared to Australia – starting from $50,000 – $150,000, you could purchase a good quality property that attracts a long-term tenant
- In some cases, you didn’t even need to own the properties to even participate in that market!
The American market is particularly suitable for me because of the way the market had evolved and made it a much more entrepreneurial space. The American real estate market proved to be:
- Highly recession-resistant – you’re not heavily reliant on capital growth as your only strategy for driving profitability. I would (and I’m sure many investors would) prefer to be earning stable and relatively high cash flow
- No need to deal with tenants and toilets – get rid of the headache of dealing with ongoing property repair and tenants
- More power over the property – you become the lender with the highest level of security, just like the bank
- If something goes wrong with the property, it’s not your problem to deal with
Bear in mind, that alternative investments are not for everyone.
So how do you know if this is suitable for you?
In my experience, I don’t recommend alternative investment opportunities for new investors. Instead, these opportunities are most suitable for:
- Business owners that appreciate the need for speed; or
- People that have the willingness to learn new strategies
To succeed with alternative investments, you need to have a sound understanding of property investing and know the strengths and limitations of property investments as an overall wealth creation strategy.
One of my clients is a high net wealth individual and has a very successful on-paper investment portfolio.
However, they know they aren’t in a good situation because they’re capital rich but cash poor.
This meant that if they were planning to retire, they wouldn’t be able to do so in their current predicament because they need their current business income as cash flow to support their lifestyle, which their investment properties cannot generate.
So what I recommended to them is to put a small amount of their money into alternative investments.
My aim for them was to help them replace their current business income within 18 months to 7 years.
Depending on where they are with their investment journey and how quickly they learn and embrace alternative investment strategies, they could achieve financial freedom much sooner than they originally planned to.
Alternative Investments are Low Risk
Just because something is unfamiliar to you doesn’t automatically mean it’s risky.
One of my mentors successfully coaches very conservative business people in the medical space (surgeons, doctors, dentists) because these strategies are perceived as low risk.
Here’s why the strategy works for them:
- Their investments are diversified
- A small amount of money is required per deal
- The properties are geographically spread
- They’re working with multiple experienced advisors and dealmakers
The biggest secret to success with alternative investments: it’s partnering up with other like-minded people and to work with trusted advisors that have put a lot of effort into mastering their strategy.
Alternative investments strategies in property is a game-changer and has a significant impact on your financial wealth if you can implement it successfully.
Though it’s not suitable for all investors – avid property investors like myself who have hit the ceiling when it comes to accessing additional capital should explore alternative investing as an opportunity.
Rather than selling down or accepting that this is the limits of your investing journey, alternative investing offers additional methods to accelerate your way towards financial freedom.
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