I came across one of Michael Yardney’s blogs – it attracted me, and it probably did to you, too – “The Four Most Dangerous Words in Property Investment.”
Well, it sucked me in, and they’re pretty good, too.
I was laughing all the way through it, only because I’ve actually fallen into this trap.
Here’s a Transcript of the interview
(Alternatively you can listen to the short podcast at the top)
Kevin: Let’s begin by listing what those four words are.
Michael: “This time, it’s different.”
Or variants of this: “This time, we have a low interest rate,” or “This time, the stock market crash isn’t going to affect us,” or “This time, the economy is not going to change things.”
It’s the advice I learned early from one of my mentors, and I found to my detriment that I wasn’t paying any attention to it – thinking that this time it was going to be different.
Kevin: There are some great hints about where we’re going to go just by looking at the past.
Michael: This is true, while it’s not exactly a replica of the past, there are very many lessons you can learn from the past.
Let’s could go through a couple of those now.
Kevin: That would be great.
Michael: The first one is booms don’t last forever.
During a boom everyone is optimistic and expects good times to last forever.
That’s just the way our mind works, just as we lose our confidence during a downturn.
But I learned the hard way many years ago, that property markets are cyclical.
Each boom sets itself up for the next downturn, just as each downturn paves the way for the next boom.
Every upturn is followed by a downturn, which paves the way for the next upturn.
I’ve found that most investors haven’t had their upside maximised, nor have they adequately been prepared for the downside.
Kevin: What would be the main lesson we would learnt there?
Michael: The property market moves in cycles, and each state is at a different stage, and within each state, there are multiple cycles
Kevin: Yes, and be prepared for the next phase.
Kevin: What’s lesson number two?
Michael: Beware of the doomsayers.
As long as I’ve been investing, I remember hearing excuses why property values are going to plummet, and they’re out there again today.
But during those 40 years or so I’ve been investing, the price of well-located capital city properties have doubled about every ten years or so.
Sure, there have been periods when property values have languished – often for four or five years, but then they eventually catch up again.
However, fear is a very powerful emotion, and currently, the media is using it to grab our attention.
Sadly, some people have actually missed out on great opportunities to secure their own financial independence because they’ve listened to the message of those doomsayers, people who are wanting to deflate the financial dreams of their fellow Australians.
Kevin: What would be lesson number three?
Michael: To help cut out all emotion, the answer is to follow a system.
Strategic investors follow a system that takes the emotion out of their decisions.
It many be boring, but it’s profitable.
Let’s be honest….
Almost anyone can make money during a strong property market because, as they say, a rising tide lifts all ships.
But many investors without a system found themselves in financial trouble each time the market turned.
I remember Warren Buffett clearly saying, “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, you could be caught with your pants down when the market changes.
Kevin: What about those get-rich-quick schemes?
Michael: That’s another reason to have a strategy.
Real estate is really a long-term proposition, yet some investors seem to be chasing the fast money.
They look for that one deal, that deal is going to make it all different for them.
A year later, they’re still no better financially and they’re looking for another deal.
Patience is a virtue.
Another great Warren Buffett saying is “Wealth is the transfer of money from the impatient to the patient.”
Kevin: Finally lesson number five?
Michael: It’s about property.
If you’re in the property investment business, you don’t forget the fundamentals of well-located properties that are going to increase in value, rather than chasing the next hot spot or getting caught in the mining boom or getting caught in off-shore properties or options or land banking or other things.
Those who bought cheap properties in secondary locations or chased cash flows in regional areas over the last couple of years have actually missed out on the fantastic boom that capital cities have had.
Strategic investors make educated investment decisions based on research, and they buy a property below its intrinsic value and keep it in the long-term.
Then they add value to their proeprties – they manufacture capital growth by adding value.
There are lots of other lessons, but if one pays attention to these ones, it’s going to see you through over the next couple of interesting years because it’s never going to be different.
Kevin: Exactly right. Five great lessons there.
Michael, thanks for your time.
Michael: My pleasure, Kevin.