The worst & the best property advice I’ve been given

Recently one of my nephews, who has taken a keen interest in property investment, asked:

What’s the worst advice you’ve ever been given on real estate investing and what’s the best advice you could give me?

The worst advice

I explained that the worst real estate investment advice I was given was that property investment is easy.

This was clearly wrong because most property investors fail!

Look at the facts - 50% of those who get into property investment sell up in the first 3 to 5 years and of those who keep their properties, the vast majority never end up owning more than one or two properties.

This means they won’t ever achieve the financial independence they desire.

However, over the years, I found property investment is simple, but not easy.

And that’s not a play on words.

It’s simple if you follow a proven formula but it’s really hard to become wealthy in property if you do what everyone else is doing.

You see...attaining wealth doesn’t just happen, it’s the result of a well-executed plan but the fact is most beginning investors don't have a plan.

They just find a property they like and do a little research looking for any evidence they can find that confirms their emotional decision and they buy the property.

Doing it this way they've made two big mistakes.

1. They've mistaken searching for a property for researching - they've started the wrong way around. Rather than using data and research first to identify opportunities, they've found a property first.
2. They've seen property investment as an event. It's not. It's a process that starts with building a personalised, customised Strategic Property Plan.

The best advice I’ve been given

When I first became involved in property investment I didn’t understand the cyclical nature of the property market – my only experience was a rising property market.

An early mentor taught me to prepare for the lean times by having a cash flow reserve to see me through the downtimes of the property cycle or to handle unforeseen expenses.

Rather than use my full borrowing capacity and buy the most expensive property I could afford, I learned the concept of setting aside a buffer.

While I initially was concerned that I was not using my full borrowing capacity, having this safety net helped me get through the high-interest rate period of the early 1990s, while many other investors had to sell up their properties.

It’s a lesson I’ve never forgotten and has let me sleep peacefully at night through 5 property cycles.

Tips: Another piece of good advice – treat your property investments like a business.

Over the years I’ve seen a small group of property investors, those who treat their investments like a business, become very, very rich by growing a multi-million dollar investment property portfolio.

They do this by understanding “the system” and 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.

Let's face it; the majority of Australians will always be employees but we all have the ability to become financially free by becoming property investors who treat their investments like a business.

And you can set up your own property investment business while you are still an employee or self-employed.

In fact, that’s what I did and what almost every wealthy property investor I know has done.

They built their wealth by growing their real estate portfolio one property at a time.

While this was going on they lived off the income they earned from their day job.

They started off with one property, then leveraged off its capital growth to invest in another and another until one day they found themselves with a true property investment business.

One that gave them financial freedom and choices in their lives.

So what's the best or worst advice you've been given?

Please leave your comments below.

About Michael Yardney Michael is the founder of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media.