The Family Investment Mindset

Investors might employ any number of strategies to develop their investment plan, and the approach will vary depending on individual goals. Some investors are interested in building wealth quickly, and some are interested in maximizing leverage to grow their portfolio. Meanwhile, others are seeking a more long-term stable strategy – It all depends on the current situation of an investor and where they want to go. In this article, we will assess what we refer to as the family investment mindset – a mindset that is geared toward investing for the long term: a safer way for you to build a stable growing portfolio.

Understandings of this concept – the Family Investment Mindset – are highly subjective, and how to best apply the strategy depends on who you ask. However, for the sake of this article, we will operate with the understanding that the family investment plan is rooted in developing investment approaches around the specific needs of an individuals financials needs as well as their familys. This strategy is not meant to look the same for every family, but instead is a carefully crafted model that considers a family’s current economic position, as well as their short- and long-term goals and their specific needs.
Let’s look at an example of a strategy built from a family investment mindset.

Let’s say that two brothers who both work full-time as dentists, and are both in their fifties, have saved up extra cash, and they would like to use it to help improve their income after retirement. Their goal is to retire in fifteen years; however, at the current time, they do not need the additional cash flow. Since this is the case, their best move would be to take on a small amount of debt to allow them to purchase a more expensive property and use the income they receive from the property to pay down their loan. They will want to focus on acquiring a well located property with an investment grade tenant (financially very strong) and with a long lease (15 years) in place. This will reduce their risks and management requirements on the deal. During the length of the loan, this scenario will result in minimal cash flow; however, by the time they retire and the debt is paid off, their cash flow will be significantly higher than it would have been had they not secured a loan. The two brothers took into consideration the position of the family, and there plans in retirement instead of just the short-term goals of their immediate financial position. They were focused on their family’s long-term goals – in other words, they approached their investment with a family investment mindset.

Some investors would be turned off by the above investment strategy because it doesn’t offer enough immediate reward. And in fact, there are avenues to increase the value of a property in the short term. For example, paying off debt or updating construction on a property could improve the performance of the property and increase the immediate return. However, this would have a negative impact on the personal income of the investor because the cash flow would be going toward benefiting the asset itself rather than the individual’s cash flow desires and their long-term goals. Therefore, if you are investing with a family and a future in mind, then finding balance between short term results and long-term stability for you and your family is key.You would not want the property to lose value over time so pick a great location; the aim is to focus on maintenance and long-term growth.

All families are different, and family investment plans ought to reflect the various stages of life that investors are in. Some may be nearing retirement — like in the above example — but some families may be more motivated by developing a strategy that preserves wealth or generates immediate cash flow. What matters is that each family has a discussion to identify their needs and goals before attempting to develop an effective business plan. From there, they might invest in self acquired stable assets or invest in partnerships, funds, REIT’s, etc. Again, the plan should be geared toward your specific family needs. However, one aspect that all families should include in their plan is a plan for how they are going to mitigate risk. Here are the most common ways one can mitigate risk in their portfolio:

  1. Low leverage – Do not take on too much debt; match your tenant’s payments and financial strength in the long run. Do not rely on extra cash flow by increasing your debt.
  2. Diversify – Invest in different asset classes, income streams and locations, and consider different strategies.
  3. Focus on the Dependability of the Asset – Focus on strong locations, tenants, reserves, and quality of the property.

Stick to the Plan!

One of the underpinning objectives of the family investment strategy is that it keeps the end goal in mind and ensures that families have an exit strategy. Once you have established the plan, stick to it! Keep in mind, though, that over time, unforeseeable events will occur. These can include rent control, changes in consumer demands, shifts in city development regulations, and demographic change patterns. As these occur, make adjustments as needed to put yourself back on path to reach your ultimate goal. Whatever changes you have to make — and you will have to adjust — start by revisiting your end goal. Then, plan from there.

Read this article for the benefits of The Long Term Strategy!



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