Expert Advice with Michael Yardney. 06/04/2018

Despite what some people will tell you, property investment isn’t easy.

But it’s simple. Now that isn’t a play on words.

What I’m trying to say is that if you do what most property investors do, you’ll get the same results as most property investors get – and that’s not pretty.  And that’s partly because the way most Australians think about investment is wrong.

On the other hand, you’ll be heading in the right direction if you understand the following truths about real estate investing.

 Sorry, but ...

1.    Property markets go through at cycles.

The value of well located properties increase over the long term, often doubling every 10 – 12 years. But there are times every property cycle when values stagnate – sometimes for a number of years. And there are short periods when the value of your properties will fall a little. Get used to it. It's just what they do.

2.    Saying "I'll be fearful when others are greedy and I’ll be greedy when others are fearful" is much easier than actually doing it.

Being a countercyclical investor isn’t easy. Most investors are overly optimistic during booms when they should be cautious and most pessimistic during downturns when they are surrounded by opportunities.

3.    No one really knows what the property market will do in the medium term.

While in the long term our markets are driven by fundamentals, in the short term human emotion and crowd psychology play havoc with the best laid forecasts. Then every year an unknown X factor comes out of the blue to surprise us - sometimes on the upside, but more often on the downside.

4.    Real estate investment is a game of finance with some properties thrown in the middle.

Strategic property investors buy themselves time in the market by having financial buffers in place to see them through the ups and downs of the property cycle.

5.    Property investment is meant to be boring.

If you’re looking for excitement go bungee jumping or trail bike riding. Make your investing boring so the rest of your life can be exciting.

6.    There is more free property information available today than ever before, but much of it is useless.

Keep your eye on the big picture and the long term and avoid being distracted by the white noise and the fake news. The majority of market news is not only useless, but it is harmful to your financial health.  

7.    Be careful who you listen to

Most of what is taught about property investing is theoretical nonsense. Very few of the current property educators are independently rich from property. Rather than listen to the get rich quick stories, it’s worth listening to those who talk about their mistakes and avoid the spruikers who don’t – theirs are usually much bigger.

8.    There is virtually no accountability for the many property gurus and their hot spot predictions.

I find it interesting that people who have been wrong about everything for years still draw large crowds of followers looking for the next get rich quick scheme.

9.    The more “comfortable” an investment feels, the more likely you are to be taken by marketers or sales people.

Avoid rental guarantees or promises of certain returns

10 . Despite what most would like to think the biggest difference between ultra-successful property investors and the rest is not their property strategy or their investment “secrets.”

 It’s the way they think – their “mindset” and their Rich Habits.

11    . If you have credit card debt and are thinking about investing -  stop.

You will never beat 20% annual interest that you’ll get paying down your bad debt. Become financially fluent before you start investing otherwise the significant debt you’ll take on buying property will most likely overwhelm you. Despite what the average person believes, debt is good. As long as it is used to buy appreciating assets.

12. Residential real estate is a high growth, relatively low yield investment, so don’t buy real estate for cash flow.

Of course, cash flow is important to keep you in the game, but it’s capital growth that will get you out of the rat race.

13. There are 3 stages of your property investment journey.

You first go through the asset accumulation stage which requires leverage and owning high growth properties; then you slowly reduce your loan to value ratio; until you can eventually live off your “cash machine” of properties.

14. However many properties you think you'll need provide cash flow for your retirement, double it.

Now you're closer to reality.

15. It takes the average investor 30 years to become financially independent through property.

Most investors waste the first ten years making mistakes and learning what not to do. The next few years are taken up selling underperforming assets and getting their financial house in order. Then it takes two or three good property cycles to become wealthy through property. Of course you can shortcut this by getting the right mentors early in your journey.



Michael Yardney is CEO 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.

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Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.