Wise investors know that you can always be learning lessons.
Sometimes you have to look back and reflect on lessons learnt from the past.
With our property markets now in a more mature stage of the cycle, it seems appropriate that we should reflect back and look at some of those lessons that we’ve learned over the last few years.
Here’s a Transcript of the interview
(Alternatively you can listen to the short podcast at the top)
Michael there’s no doubt you’ve spent time a bit looking back at lessons you’ve learnt on your property investment journey.
Michael: I certainly have, I have learned a number of lessons along the way.
Wouldn’t it be nice to have known then what we know today?
Kevin: Yes, it would be. What would be the first lesson you look back on?
Michael: The first lesson is that neither booms nor busts last forever.
During the boom stage of the property cycle, everyone is optimistic – they expect the good times to last forever – just like we lose our confidence in the downturn stage.
Currently, despite all the mixed messages in the media, people are still reasonably optimistic.
It’s just a thing that psychologists call recency bias.
The other thing that tricks our minds is something called confirmation bias – you actually look for information to confirm your predetermined decision that the market is doing really well, and you tend to neglect the other bits.
Take advantage of property cycles as they occur, but be ready for the downturn.
Be covered because this too shall pass.
Kevin: Thank you, what is lesson number two?
Michael: There’s always going to be doomsayers.
As long as I’ve been investing – it’s over 40 years now – I remember people saying that property prices are too high and the market is going to bust.
Fear is a powerful emotion, and the media use it to grab our attention.
Sadly, some people miss out on opportunities to develop their own financial freedom because they listen to the messages of those who want to deflate our financial dreams.
Yes, be cautious of this stage of the property cycle, but don’t let fear take hold of your decisions.
Kevin: That’s great advice, and lesson number three?
Michael: Follow a system.
Therefore, don’t let emotions – and fear is one of them, as is greed – drive your investment decisions.
To take the emotion out of it, get a system rather than speculate.
This may be boring but it’s profitable.
Almost anyone can make money after the boom conditions of the last couple of years, but many investors without a system found themselves in financial trouble when the market turned down last time around.
I remember Warren Buffett clearly saying you find out who is swimming naked when the tide goes out.
The tide is going to go out in the future, so those who follow a system are less likely to be caught when conditions change.
Kevin: Do you find that people who do follow a system treat it like a business?
Michael: They do, but they have a reason why the want to invest.
It should be for capital growth, but everybody is in a different stage in their financial journey, so some want to invest for cash flow.
They should be investing rather than speculating.
I’m seeing a lot of people currently fearing that they’re missing out, so they’re looking for the get-rich-quick, the fast money.
They’re looking to bypass the banks, they’re looking to do things in a way that isn’t going to work, I guess.
A good saying to remember from Warren Buffett’s is “Wealth is a transfer of money from the impatient to the patient.”
Kevin: That would align with your fourth lesson, wouldn’t it, about the get rich quick schemes?
Michael: Yes, it would.
Only recently ASIC jumped down on a number of what they call “property spruikers.”
There are some promoters out there who are promising unrealistic expectations, unrealistic returns.
Remember, if it’s too good to be true, it probably is – or it’s at least definitely worth exploring more before you jump in.
Kevin: To finish us off, what would be the fifth lesson?
Michael: It’s actually about property.
That’s what we’re involved in.
But I hear people getting involved for depreciation, or for tax benefits, or for negative gearing.
Really, what you have to understand is don’t look at these glamorous financial or tax strategies; smart investors buy well-located assets that are going to be in strong demand by a wide range of – generally – owner-occupiers.
In order words, to me, a good investment property is one that owner-occupiers always want, not one that tenants or investors are looking for.
Then, buy that sort of property and hold it for the long term.
That’s likely to help you build your financial wealth, like a lot of others have.
So, despite being at a mature stage of the cycle, I know a lot of people who are today looking back very happily, having bought in 2007 and 2008 before the market slowed down then, or in 2002 or 2003 when, again, we had the peak of the market and things slowed down.
They bought well-located properties, were able to ride the cycle, and today are sitting back looking very happy.
Kevin: Thank you Michael. It’s always good talking to you. You can catch up with Michael, of course, at his blog site: PropertyUpdate.com.au
Michael: My pleasure, Kevin.
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