Over the 40 years I have been investing in real estate I have seen many investment fads and fashions come and go.
Recently I’ve noticed that in this current more mature stage of the property cycle as investing in capital city properties becomes more unaffordable, more investors are once again looking for new investment “fads”, while others feel they’ve missed out on the boom conditions of the last few years and are in a hurry to make up lost ground.
Many are influenced by the latest get-rich-quick artist with a great story about how you can join them and become stupendously wealthy.
Their 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 investors many years to accumulate sufficient assets to do this.
You see…patience is an investment virtue and Warren Buffet said it right when he explained that: “Wealth is the transfer on money from the impatient to the patient.”
Now there’s nothing new about this…
In the late 70’s the fad was “time share” apartments, which sounded like a good idea at the time, but was just a way for developers to get rid of stock they couldn’t sell.
Then in the late 80’s the fad was buying “off the plan” in the Gold Coast property boom, however many investors lost their shirts as the Gold Coast property market languished for most of the 90’s.
In the late 90’s “buying of the plan” came back to a whole new unsuspecting generation, but this time with a twist. While some investors who bought early in that boom made a profit, many ended up ruing the day they bought their off the plan high rise city apartments because they never intended to settle on these properties, instead they hoped to on sell their properties to some gullible investor before completion. This created a succession of investors playing musical chairs, buying the same property off each other, but when the music stopped and the property cycle suddenly ended, the last man sitting or standing was left with an overpriced property they didn’t really want or couldn’t afford.
Then in the 2000’s came seminars promoting investment in New Zealand real estate followed by the push to buy cheap properties in depressed regional locations around Australia and renovate them.
I recently found an old article I wrote about 10 years ago telling the story of investors who bought in small regional towns and lost out due to a lack of capital growth, high vacancy rates and expensive holding costs.
Even worse, some were lured into selling their existing investment properties which would have since doubled in value, to chase higher returns elsewhere.
Then over the last decade there have been three waves of investors enticed to invest in the USA, with promises of properties cheaper than the price of a second hand car here.
The Internet is littered with stories of casualties of this fad, as it is of investors who lost out by investing in hot spots, mining towns and regional towns over the last 5 years.
On the other hand, while all this was going on a small group of investors, those who bought the right properties, slowly but surely grew their wealth.
It’s no coincidence that these smart investors follow a system to take the emotion out of their decisions and ensure they didn’t speculate or get sidetracked by the latest fad.
This may be boring, but it’s profitable.
Let’s be honest, almost anyone can make money during a property boom because the market covers up most mistakes, but many investors without a system find themselves in financial trouble when the market turns.
Warren Buffet said it succinctly: “A rising tide lifts all ships…And you only find out who is swimming naked when the tide goes out.”
So what makes “the right” property investment?
Well, one thing is certain: there is no such thing as a perfect investment.
If somebody tells you they have found “the perfect investment” be very skeptical and ask lots of question, because chances are they’re trying to sell you something you just shouldn’t be buying.
In my view we’ll have some challenging economic times ahead so you should only invest in assets that are both powerful and stable.
By powerful, I mean they must have the ability to grow at high, wealth producing rates of growth.
By stable, I look for investments that grow in value steadily and surely without major fluctuations in value.
Many investment vehicles are powerful and many are stable, but only a few are both.
Prime capital city residential real estate is one of the investment vehicles that has both power and stability in spades.
If you prefer to have consistent profits and reduced risk, avoid the fads and follow a proven system.
Make your investing boring, so the rest of your life can be exciting.
Michael Yardney is a director of Metropole Property Strategists, which creates wealth for its clients through independent, unbiased property advice and advocacy. He is a best-selling author, one of Australia’s leading experts in wealth creation through property and writes the Property Update blog.
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.