You probably know – like I do – a number of few people who’ve done very well out of property over the years… despite not taking much interest in it, and having no special skills.
And although I don’t want to discourage you in your quest to be an elite and highly informed investor, this got me thinking: property is the ideal investment for average people, because it forces you to do the right thing.
The Power of Doing Nothing
With any investment, the right thing to do most of the time is nothing.
I recently read that when a share investment platform surveyed their most successful customers to identify the key to their success, they discovered that most of them… were dead.
Obviously, this rather hindered their ability to buy and sell – and given that most people buy and sell the wrong things at the wrong time, being deceased is a net positive (for investment returns, at least).
Similarly, before Internet or telephone trading, another brokerage discovered their most successful clients were those who lived furthest from their office – creating a barrier to coming in and placing trades.
Nowadays, as long as you’re not dead and have a mobile phone, it’s all too easy to trade in shares and most other assets.
Property, however, is still an enormous pain to transact – and that’s a good thing.
Because you’re pretty much forced to buy and hold property, you end up being rewarded over the decades by holding on and reaping the long-term benefits.
I know there have been a number of occasions when a property has given me hassle, and I’ve been tempted to sell, or a tenant has moved out, and I’ve wondered if it’s time to cash out.
At times, I even investigated the achievable price, but ultimately I decided to hold on – and in every case, I’ve been glad I did.
Of course, you can adopt this buy-and-hold mentality with any asset – but psychologically, especially in times of turmoil, this is difficult to do.
Property, though, forces it upon you.
So while some people stay away from property because they’re put off by its illiquidity, strangely enough, in my mind, this may be one of the biggest things in its favour.
The Psychology of Patience
Investing in property demands a certain level of patience and resilience.
Unlike the stock market, where you can make quick decisions and execute trades in an instant, property requires a more measured approach.
The processes of buying and selling are lengthy and cumbersome, which acts as a deterrent to impulsive actions.
This built-in friction can be a blessing in disguise, encouraging investors to adopt a long-term perspective.
When the market is volatile or when economic uncertainties loom, the temptation to sell off assets can be overwhelming.
However, the very nature of property investment—with its significant transaction costs and time-consuming procedures—naturally discourages rash decisions.
This enforced patience often leads to better financial outcomes, as it aligns with the fundamental principle of investing: time in the market beats timing the market.
Leveraging and Wealth Creation
Of course, there are many other benefits to owning property as an investment class.
Property offers unique opportunities for leveraging.
With the ability to borrow against the value of your property, you can amplify your investment returns. Over time, this leveraging can significantly accelerate wealth creation.
There’s also something to be said about the psychological comfort of owning a tangible asset.
Property is something you can see, touch, and directly manage. This tangibility often provides a sense of security that abstract financial assets cannot match.
Conclusion: Embrace the Drawback
In conclusion, the very characteristics of property that some see as drawbacks—its illiquidity, the hassle of transactions, and the forced patience—are precisely what makes it such a powerful investment vehicle.
These features protect investors from their worst impulses, foster a long-term investment mindset, and ultimately lead to more substantial financial gains.
So, if you’re hesitating to dive into property investment because of these perceived negatives, it’s time to reconsider.
Embrace the “drawbacks,” and you might find they are, in fact, your greatest allies in building enduring wealth.
