12 Important Lessons All Property Investors Should Remember in 2015 – Michael Yardney
I see every year as a time for learning and personal development.
That’s one of the best parts of being involved in the property markets.
I’m learning from my clients, both the successful ones and the not so successful ones, I’m learning from my professional colleagues and mentors and I’m learning from my own successes and failures.
I’m also learning from the property markets because they are so dynamic that you never quite “solve the puzzle” because the puzzle is always getting reshuffled in front of you right when you think you’ve got it solved.
Having now invested for around 40 years I’d like to share a few of the lesson I’ve learned (often the hard way):
1. Don’t let emotions drive your investment decisions
Probably the most important lesson we can all learn is to never get too carried away when the market is booming or too disenchanted during property slumps.
Letting your emotions drive your investments is a sure-fire way to disaster.
2. Booms don’t last forever
During a boom everyone is optimistic and expects the good times to last forever, just as we lose our confidence during a downturn.
Our property market behaves cyclically and each boom sets us up for the next downturn, just as each downturn paves the way for the next boom.
The lesson is that even as you take advantage of our booming markets, get prepared for the next phase of the property cycle.
During the last cycle, most investors didn’t really have their downside covered or their upsides maximized.
3. Take a long-term perspective.
The property market moves in cycles and in every decade there are a few years of flat or falling property prices, however well located real estate has increased in value by an average of over 8 per cent per annum over the long term.
Imagine if you could buy the house your parents bought at the price they paid thirty or forty years ago, how many properties would you have bought then knowing what those properties would be worth today?
4. Get Rich Quick = Get Poor Quick
Real estate is a long-term investment yet some investors chase the “fast money.”
You’ve probably met people like that – they look for that deal that will make them fabulously rich. When you see them a year later, they’re usually no better off financially and still talking about the next deal that will make them rich.
They’re often influenced by the latest get-rich-quick artist with a great story about how you can join them and become stupendously wealthy.
These stories can be very compelling, even hard to resist.
They often pander to the wishes of people who would like to give up their day job to get involved in property full time, but in reality it takes most people many years to accumulate sufficient assets to do this.
Patience is an investment virtue.
Warren Buffet said it right when he explained that: “Wealth is the transfer of money from the impatient to the patient.”
5. Follow a system
Smart investors follow a system to take the emotion out of their decisions and ensure they don’t speculate.
Let’s be honest, almost anyone can make money during a property boom because the market covers up most mistakes.
But when the market turned last time many investors without a system found themselves in financial trouble.
Warren Buffet said it succinctly: “You only find out who is swimming naked when the tide goes out.”
In other words, if you aren’t following a system that works in all market conditions, then you will be caught naked when the market changes.
If you prefer to have consistent profits and reduced risk, follow a proven system. Make your investing boring, so the rest of your life can be exciting.
6. Beware of Doomsayers
As long as I have been investing I remember hearing people with excuses about why property prices will stop rising, or even worse, why property values will plummet.
However in that time, well located properties kept doubling in value every 8 to 10 years.
Fear is a very powerful emotion, and one that the media use to grab our attention.
Sadly some people miss out on the opportunity to develop their own financial independence because they listen to the messages of those who want to deflate the financial dreams of their fellow Australians.
7. The Crowd is usually wrong.
“Crowd psychology” influences people’s investment decisions, often to their detriment.
Investors tend to be most optimistic near the peak of the cycle, at a time when they should be the most cautious and they’re the most pessimistic when all the doom and gloom is in the media near the bottom of the cycle, when there is the least downside.
Market sentiment is a key driver of property cycles and one of the reasons why our markets overreact, overshooting the mark during booms and getting too depressed during slumps.
8. There is not one property market.
While many people generalise about “the property market” there are many submarkets around Australia.
Each state is at a different stage of its property cycle and within each state the markets are segmented by geography, price points and type of property.
For example the top end of the market will perform differently to the new homebuyers market or the investor segment or the median priced established property sector.
And while at any time there are hundreds of thousands of properties for sale in Australia, in my mind less than 1% are “investment grade” properties.
9. Treat Property Investment like a Business
The successful investors I know have grown a substantial asset base by treating their investments like a business.
They do this by surrounding themselves with a great team of advisors, getting the right type of finance, setting up the correct ownership and asset protection structures and knowing how to legally use the taxation system to their advantage.
10. There will always be a reason not to invest
Every year brings its own set of crises and lots of reasons not to invest. You can go back as far in history as you like and there won’t be a crisis free year.
Sure some years are worse than others, but there is always bad news and much of it is unexpected.
Where investors get into trouble is that rather than focusing on their long term goals, they see these crises as once in a generation events that will alter the course of history, when in reality they are just the normal path of history.
11. You know less than you think you know.
There is a nearly insurmountable amount of material to learn about in the fields of property, finance and economics.
The big lesson is that I know so much less than I think I know. The markets will humble you if you don’t check your ego at the door. Always continue learning.
12. The person who mistakes “money” for “wealth” will live a life accumulating things, all the while mistaking a life of owning for a life of living.
Money will make your life easier to a certain degree, but if you let money own you it will make you miserable.
I became a lot happier about 20 years ago when I realized that money isn’t true wealth. (And I learned it the hard way!)
True wealth is what you are left with when they take all your money and properties away – your health, your family and friends, your knowledge and mindset, your spirituality and your ability to contribute to society.
Please let me know what you learned this year in the comments below. And here’s to hoping that we learn a lot together in 2015.
The more I learn, the less I seem to know. Maybe next year I’ll have 13 things on this list for you.
Want to learn a few more lessons?
I’ll be explaining what I’m doing to take advantage of the property markets and even more importantly, what I’m not doing at our upcoming Property & Economic Market Update one-day trainings I will be holding around Australia in March and April.
You can find out all about this only round of national seminars I’ll be conducting by clicking here. Reserve your place now.
Michael Yardney is CEO of Metropole Property Strategists who create wealth for their clients through independent and unbiased property advice and advocacy www.metropole.com.au
Disclaimer: This article contains general information. Before you make any financial or investment decision you should seek professional advice to take into account your individual objectives, financial situation and individual needs.