If you’re thinking that this week’s post will be about understanding HMRC’s responsibility for collecting taxes from property investors, that would be wrong. We won’t be looking into Income Tax, Corporation Tax, Capital Gains Tax, Dividend Tax or VAT. That is for you and your property accountant to discuss. Rather, this post is about two metaphorical taxes you really MUST understand- one tax you need to pay and one that you really want to avoid paying. Let’s start with the one you need to pay if you want to accomplish your big goals.
#1: ARE YOU PAYING SUCCESS TAX?
Could the hardest, most challenging, most stressful events along your property journey actually be the key to your success?
If anyone’s read Dean Graziosi’s book Millionaire Success Habits then you’ll know he uses this phrase ‘success tax’ and references it regularly as something we have to pay to get to the next level.
When I think back to the first year Chris and I had in serviced accommodation it represents a significant landmark for us. Not for any glamorous reasons of early success however. In fact our first SA business was a failure and a painful lesson, but it was those experiences that led us to find a better way and start again with a totally different approach.
Those experiences built the grit, the muscle and the insight to go from that place of a loss making SA business that was built on hope, to where we are now with a successful SA business and a full time manager in place running the day to day operations.
What if everything in your life was designed for you – to test if you have the courage, the grit and the dedication to become the best version of you? And when you do push through, pass the test and emerge out the other side, you get to live the life you envisage for yourself.
Dr John Demartini shared a similar message when Chris and I attended his live event in Glasgow back in 2016 – he explained the reframe to see the challenging events in life through a lens of ‘happening for us and not to us’. In other words the lows, unexpected pitfalls, stressful challenges etc happen for us to respond in the way we choose, and in choosing and acting we grow and become the next version of ourselves.
What about you, where are you paying success tax thinking it’s the worst thing ever when actually it’s the path designed for you? Wrapping your head around this fact that you can’t get to the next level without first dealing with the challenge/struggle in front of you right now is essential for property entrepreneurs to push through and get from where you are to where you want to be. We can’t one up the universe, we have have to pay SUCCESS TAX along the way. And it’s no surprise that this is true across all areas of life.
#2: AVOIDING ‘CRAP TAX’
Changing tack now to a little light humour, I wanted to introduce you to the ‘CRAP TAX’. This was a phrase I heard coined by Darren Hardy who I follow daily. What he’s referring to here is the true cost of buying something cheap. I know you will all have heard the phrase ‘buy cheap, buy twice’, yes? Well having to outlay more money to buy the same item shortly after having bought it the first time – that’s the crap tax.
So in the context of your property journey what might this translate to? Cheap legal advice leading to a costly outcome that could have been avoided? Cheap dining chairs in your SA unit leading to them breaking after just a couple of months? Cheap tradespeople delivering such poor workmanship that it has to be re-done? Or what about the house that looked cheap, but ends up costing you as much as it’s maximum market value once you do everything to put right a multitude of hidden problems with it?
Just as in every business we have to protect our margins by not overspending. Anyone refurbishing a property either for refinance or for sale will feel the pressure to keep costs low. However, it will inevitably need to be a balancing act between managing upfront cost and protecting yourself from the ‘crap’ that could unfold down the line.
I can recall 2 occasions over years where a lower cost builder has talked a great game but delivered such botched work that the ramifications have been significant. We’re not just talking the actual cost to re-do the poor bits of work, but think about the ripple effect of the unnecessary stress, the huge time drain going back and forth to try and rectify things, not to mention any negative impact on prospective client/customer relationships. These ramifications I’m highlighting demonstrate the true cost of ‘Crap Tax’.
Crap tax is like a sneaky evil ninja tax that if you’re not careful can creep up after the event it’s connected to and bite you in the proverbial just when you thought everything was going great.
Don’t get me wrong there are times where bargains and the low cost options can work out great. However, those who are in property for the long term, will no doubt conclude that paying for a decent level of quality, even if it feels expensive at the time, will far out way the short term gain of cheap.
So, going into this next week of activity which of these wil be front of mind for you- will you be accepting about paying SUCCESS TAX or will you be strategically avoiding the CRAP TAX?