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By Michael Yardney
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23 lessons from 2023 you don’t want to forget now that we’re well into 2024

key takeaways

Key takeaways

We're almost half way through 2024, and our property markets are surprising many on the upside, so it's a good time to look back and remember some lessons to help make the rest of 2024 a better year for you as a property investor.

Today I share 23 property lessons from 2023 including:

Strategic investors expect an X factor each year, but focus on the long term. They protect themselves by owning the best assets they can, having financial buffers in place to ride through the ups and downs of the property cycle, setting up the right ownership structures, insuring themselves and obtaining holistic advice from their consultants.

It's the media's job to entertain you, not educate you and the strong performance of our property markets reminded us to ignore pessimistic property predictions by the so-called "experts" who predicted real estate Armageddon.

Don't make 30-year investment decisions based on the last 30 minutes of news.

No one really knows what's going to happen to the property markets, so be careful who you listen to. It's important to have mentors who have built their own substantial property portfolio, and who have kept their wealth through a number of cycles.

The "crowd" is usually wrong, so to be a successful property investor you need to do things differently to most everyone else does.

Property investment is a game of finance with some houses thrown in the middle.

Believe it or not, we're almost half way through 2024, and our property markets are surprising many on the upside.

Of course, each year brings its own set of wins, challenges, and lessons to learn and looking back at last year - 2023 -  this was certainly no exception.

So it's a good time to look back and remember some lessons to help make the rest of 2024 a better year for you as a property investor.

Lady Success

Remember a couple of years ago when our attention was focused on Covid-19 and its impact on our lives and then in 2022 when property values started falling and interest rates kept rising.

Well 2023 will go down in history as the year when booming immigration led to a shortage of dwellings causing property values to rise and rents to skyrocket.

In fact property values have been rising for 16 months in a row now.

However, looking back to the beginning of last year, who would have thought that we would have had so many more interest rate rises, inflation would remain stubbornly high and yet unemployment would remain at historical lows and our housing markets would be so resilient or that there would be a war on the other side of the world that would last for over 2 years and another war in the Middle East?

Nobody could have foreseen all that’s happened, including the severe slump in consumer confidence because of all the economic uncertainty.

Yet as we work our way through 2024, I can’t help but reflect on what Australia as a country has accomplished and what I’ve achieved personally, what I’ve overcome, and the lessons I want to carry with me.

So here are my top 23 lessons from 2023.

1. Expect the unexpected

Every year an unexpected X factor comes out of the blue to undo the best-laid plans – sometimes on the upside (like the miracle election result in mid-2019) and sometimes on the downside like Covid19 in 2020 or the war in Ukraine in 2022 and the Middle East war in 2023 or souring relationships with China, our major trading partner.

Strategic investors try and protect themselves from these surprises by owning the best assets they can, having financial buffers in place to ride through the ups and downs of the property cycle, setting up the right ownership structures, insuring themselves and obtaining holistic advice from their consultants.

Expectations

But the biggest risk is what no one sees coming, because if no one sees it coming then no one is prepared for it and if no one is prepared for it, its damage will be amplified when it arrives.

While an X factor seems to come every year, a major Black swan event as some call it, one that “breaks the world”, tends to come every decade.

Be prepared!

2. Focus on the long term

The strong performance of our property markets reminded us to ignore the numerous pessimistic property predictions by the so-called “experts” who predicted real estate Armageddon.

I learned a long time ago, that if you read the predictions of last year and see how they transpired, you wouldn't pay too much attention to the predictions for this year.

In fact, you'll learn more from reading history than reading forecasts.

Of course, it's hard to ignore the forecasts when the media continuously reminds you about how dire our situation is, but I also learned not to make 30-year investment decisions based on the last 30 minutes of news.

Strategic investors have a long-term focus and don’t change their plans based on what’s happening “now”.

In fact, they don’t buy investments that are working now – they invest in the type of assets that have always worked.

In other words, they don’t chase the next shiny toy or the next hotspot.

Clearly, this was the thinking behind Warren Buffet's quote “Be fearful when others are greedy and be greedy with others are fearful.”

But while that’s easy to say – it’s not so easy to do.

3. It’s the media’s job to entertain you – not educate you

Remember… it’s the media’s job to get eyeballs on the advertisers’ content, rather than to educate you.

That's why you'll find so many negative or scary headlines.

Remember all the forecasts of a significant property downturn in 2023?

Not just from the regular property pessimists, but from the bank and RBA economists.

Yet… how many of those experts’ forecasts came true?

Media

What happened to those forecasts of the fiscal cliff, the unemployment cliff or the fixed rate cliff and mortgage stress forcing floods of distressed properties onto our markets?

But look how many people worried and stressed about the potential outcomes that just didn’t occur.

And unfortunately being overwhelmed with misinformation led many people to live in a state of fear and anxiety and caused some to make disastrous investment errors.

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Note: Imagine how much stuff you'd have to make up if you were forced to talk 24/7. Remember this when watching financial news on TV or reading it online.”

4. Take economic forecasts with a grain of salt

Remember all those forecasts that unemployment would reach 10% or more?

What about those forecasts of property values dropping 20% or more?

They didn’t come to fruition, did they?

Similarly, if you’re reading something frightening in the business section, or hearing it on TV, or learning about it from your neighbour, it’s almost certainly too late to act — because the information is already reflected in the market – in either the share price or property prices.

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Note: The problem with economic forecasting is that the things you can predict tend to not matter, and the things you can't predict make all the difference in the world.

5. Don’t believe the Doomsayers

There will always be someone out there telling you not to invest in property.

At the beginning of the pandemic, the doomsayers found their moment and told us how our property markets would crash – they were wrong of course.

Then they were out once again telling us that inflation, rising interest rates and mortgage defaults were going to cause the property market to crash.

Don't listen to these Property Pessimistic and Negative Nellies - the so-called “experts looking for a headline” who keep telling anyone who would listen to them the real estate Armageddon is ahead of us.

There’s nothing new about these doomsayers who have been peddling their forecasts for a decade or two.

Economic Forecast

There will always be somebody wanting to stall the aspirations of their fellow Australians who are looking to take their financial futures into their own hands and do something about it.

Don’t let them stop you from achieving your financial dreams – the doomsayers are always wrong, at least in the long term.

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Note: Predictions, opinions, and forecasts should be discounted by the number of times the person making them is on TV each week.

6. No one really knows what’s going to happen to the property markets

Be careful whose forecasts you listen to.

There are 27 million property experts in Australia - everyone seems to have an opinion about property, don’t they?

But you know what they say about opinions… they’re like belly buttons; everyone has one but they’re basically useless.

So be careful who you listen to.

Look back to 2020 when most of the respected economists got their predictions wrong when they predicted significant drops in our property market.

And then in 2021, most economists did not foresee how strong our property markets would grow.

And it was much the same in 2023.

If you based your property investing on these forecasts you would have missed some great opportunities.

Property Market

So as a real estate investor, while it’s important to have mentors make sure you’re listening to somebody who has not only built their own substantial property portfolio, but someone who has kept their wealth through a number of cycles.

Someone who has been "around the block" a few times and can see patterns where others see choas

There are just too many enthusiastic amateurs out there offering investment advice at present.

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Note: There are two types of information: stuff you’ll still care about in the future, and stuff that matters less and less over time. Long-term vs. expiring knowledge. It’s critical to identify which is which when you come across something new.

7. There is no such thing as the “Australian property market.”

There are multiple markets in Australia, and each state is at a particular stage of its own property cycle within each state there are multiple submarkets depending on price point, geography and type of property.

This means that despite all Australians enjoying the same interest rate environment, the same tax system and the same government, some property markets outperformed others significantly in 2023 and the same is happening this year.

Annual Change In Home Prices

But there’s nothing new about this… local factors have always driven property market performance.

So avoid paying attention to commentary that gives broad generalisations about the Australian property market or even the Melbourne, Sydney or Brisbane property markets.

8. Don’t try and time the market

Even though they are armed with all the research available in today’s information age, economists never seem to agree on where our property markets are heading and usually get their forecasts wrong.

That’s because market movements are far from an exact science.

It’s more than just fundamentals (which are relatively easy to quantify) that move markets.

One overriding factor the experts have difficulty quantifying is investor sentiment.

So rather than timing your investment purchases (or sales), if you buy the right investment-grade assets, time in the market is much more important than timing the market.

And if you think about it, the top and the bottom of the market are really only one or two days or weeks or months in the cycle.

9. The crowd is usually wrong

“Crowd psychology” influences people’s investment decisions, often to their detriment.

Investors tend to be most optimistic near the peak of the cycle, at a time when they should be the most cautious and they’re the most pessimistic when all the doom and gloom is in the media near the bottom of the cycle when there is the least downside.

Market sentiment is a key driver of property cycles and one of the reasons why our markets overreact, overshooting the mark during booms and getting too depressed during slumps.

Remember that each property boom sets us up for the next downturn, just as each downturn sets the scene for the next upswing.

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Note: Beware taking financial cues from people playing a different game than you are.

Everyone is making a bet on an unknown future. It’s only called speculation when you disagree with someone else’s bet.

10. Property investment is a game of finance with some houses thrown in the middle

Strategic property investors have a financial plan to buy themselves not only real estate but also time.

They do this by having financial buffers to see themselves through the ups and downs of the property cycle and give themselves the capacity to handle fluctuations in interest rates.

11. You need to plan

While the property markets will create significant wealth for many Australians, statistics show that 50% of those who buy an investment property sell up in the first five years.

And of those who stay in the investment game, 92% never get past their first or second property.

That's because attaining wealth doesn’t just happen, it’s the result of a well-executed plan.

Planning is bringing the future into the present so you can do something about it now!

Just to make things clear...buying an investment property is NOT a strategy!

It's important to start with the end game in mind and understand what you need and what you want to achieve.

And then you have to build a plan, a strategy to get there.

The property you eventually buy will be the physical manifestation of a whole lot of decisions that you will make, and they must be made in the right order

That's because property investment is a process, not an event.

If you’re a beginner looking for a time-tested property investment strategy or an established investor who’s stuck or maybe you just want an objective second opinion about your situation, I suggest you allow the team at Metropole to build you a personalised, customised Strategic Property Plan

When you have a Strategic Property Plan you’re more likely to achieve the financial freedom you desire because we’ll help you:

  • Define your financial goals;
  • See whether your goals are realistic, especially for your timeline;
  • Measure your progress towards your goals – whether your property portfolio is working for you, or if you’re working for it;
  • Find ways to maximise your wealth creation through property;
  • Identify risks you hadn’t thought of.

And the real benefit is you’ll be able to grow your wealth through your property portfolio faster and more safely than the average investor.

Click here now and learn more about this service and discuss your options with us.

Your Strategic Property Plan should contain the following components:

  1. An asset accumulation strategy
  2. A manufacturing capital growth strategy
  3. A rental growth strategy
  4. An asset protection and tax minimisation strategy
  5. A finance strategy including long-term debt reduction and…
  6. A living off your property portfolio strategy

Click here now and learn more about this service and discuss your options with us.

12. Invest for Capital Growth

Capital growth should be the key driver for your investment decisions, rather than cash flow.

Sure cash flow is important and will keep you in the game, but it’s capital growth that gets you out of the rat race.

So smart investors first build their equity and then they convert it to cash flow.

At Metropole, our 40+ year analysis of investment returns shows that properties with higher rental yields generally deliver low overall returns for investors.

Capital Growth

Our analysis proved that over the medium to long term, properties with lower rental returns (but stronger capital growth) delivered significantly higher overall returns (i.e. capital growth + rental return), while “cash flow properties” with high rental returns delivered lower ones overall.

What this means is those who invest in the more affordable suburbs that deliver a high level of rental return, with the expectation of strong overall returns, achieve exactly the opposite result.

This also highlights the significant opportunity cost of having underperforming assets in your portfolio.

If you can only afford to own 2 or 3 properties, make sure they are all “investment grade” properties that are working hard for you.

Moving forward I can see we were going to have a two-tier property market.

In 2024 our housing markets are fragmented.

While high interest rates and inflation keep eating away at the average Australian's household budget making the property less affordable or many.

Of course, Australia is a big country and there are many remote locations where properties remain very affordable - the problem is that no one really wants to live there.

On the other hand, blue chip property investment grade properties will continue to remain relatively unaffected by the many fluctuations driving our housing markets, primarily due to a consistent lack of supply in those areas as well as ongoing aspirational demand from people who can afford to live in these locations.

If Coronavirus taught us anything, it was the importance of living in the right type of property in the right neighbourhood.

In our new “Covid Normal” world, people will pay a premium for the ability to work, live and play within a 20-minute drive, bike ride or walk from home.

They will look for things such as shopping, business services, education, community facilities, recreational and sporting resources, and some jobs all within 20 minutes' reach.

Residents of these neighbourhoods have now come to appreciate the ability to be out and about on the street socialising, supporting local businesses, being involved with local schools, and enjoying local parks.

As obtaining finance remains difficult moving forward, it will be the people with money that drive property prices.

Not just locals living in the area but people who want to move into these better locations.

You see...there will always be wealthy Australians who will be able to and prepared to pay more to live in these better locations – rich people don't buy cheap properties.

Currently, there is a lot of talk about the rich getting richer and those who own A grade properties having more choices - they can move house and "right size" using the equity in their homes, while others are using their home equity and acting as the Bank of Mum and Dad helping their children into the property market.

In my mind, the gap will only widen between the wealth of those who own quality property assets and those who don't.

13. There will always be reasons not to invest

Every year brings its own set of crises and lots of reasons not to invest.

You can go back as far in history as you like and there won’t be a crisis-free year.

Sure some years are worse than others, but there is always bad news and much of it is unexpected.

Where investors get into trouble is that rather than focusing on their long-term goals, they see these crises as once-in-a-generation events that will alter the course of history, when in reality they are just the normal path of history.

14. Property investment is risky in the short-term, but secure in the long term

2022 reminded many property investors that real estate is not a way to get rich quickly.

Property values don't always increase.

But this is the way the market behaves.

The following chart from independent financial advisor Stuart Wemyss of Prosolution Private Clients shows how there have always been long periods when property prices remain flat and in fact fell in many locations between booms.

property cycles

 

Yet those who stay in the game benefit from the power of compounding growth which builds wealth but takes time.

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Note: Every past decline looks like an opportunity and every future decline looks like a risk.

I found it takes the average property investor around 30 years to become financially independent, but most don’t make it because they can’t stay the distance in part because they don’t have good cash flow management.

Many people get into property investment to improve their cash flow position, but if they don’t have good money habits to start with taking on more debt only compounds the problems.

15. Plan for the worst and look forward to the best

As a property investor, I protect myself from the challenges to our property markets by:-

  • Owning the right assets – investment-grade properties in desirable locations.
  • Having multiple streams of income from a diversified portfolio of residential, commercial and industrial properties as well as shares.
  • Owning my assets in the correct structures that protected my interests and were tax efficient.
  • Having set up financial cash flow buffers to see me through difficult times.
  • Protecting myself and my assets with adequate insurance policies.

Fortunately, I didn’t need to rely on these protections I put in place long before the current challenging times, but having them in place helped me sleep much better.

You see... I've learned to protect myself and my investments because I don’t make forecasts - instead, I have expectations.

Now there’s a big difference between forecasts and expectations.

I expect there to be another recession in the next decade.

But I don’t know when it will come.

I expect the property market to remain flat for a while and then prices will boom again.

But I don’t know when.

I expect that some investments I will make won’t do as well as others.

But I don’t know which ones they will be.

I expect interest rates to once again drop back a little.

Probably not for a number of years.

In fact, I don’t know when.

And I expect another world financial crisis.

But I have no idea when it will come.

Word On Keyboard

Now, these are not contradictions or a form of a cop-out!

As I said…there’s a big difference between an expectation and a forecast.

An expectation is an anticipation of how things are likely to play out in the future based on my perspective of how things worked in the past.

A forecast is putting a time frame to that expectation.

Of course, in an ideal world, we would be able to forecast what’s ahead for our property markets with a level of accuracy.

But we can’t because there are just too many moving parts.

Sure, there are all those statistics that are easy to quantify, but what is hard to identify is exactly when and how millions of strangers will act in response to the prevailing economic and political environment.

Then there will always be those X factors that crop up.

So I plan for the worst but expect the best.

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Note: Planning is important, but the most important part of every plan is to plan on the plan not going according to plan.

16. You can't rely on one stream of income

You've probably noticed that successful investors, business owners and entrepreneurs enjoy multiple streams of income.

They strategically go to great lengths to make sure they have money coming in from all directions, or in other words "they don't have all their eggs in one basket."

Unfortunately, many Australians learned this lesson the hard way during the years of the pandemic, with some losing their jobs, others having their work hours cut back and yet others losing their life savings as many small businesses went broke.

Multiple Incomes

There will always be issues to contend with.

It may not be a pandemic next time, but it could be personal health issues or your inability to work.

Sure, it's hard enough for some people to figure out how to create a single source of income, let alone multiple streams, but in my mind, you have no choice.

Rather than relying on your job as an income source become financially fluent, learn to invest and develop multiple streams of income.

17. There are always risks associated with investing

Don’t be afraid of failing, because the biggest risk is not doing anything to protect your financial future.

Sometimes negative experiences, mistakes and failures can be even better than success because they teach you something new that another win could never teach you.

However, we are often so driven to get things right that we fail to see the value in the things we get wrong.

Instead, we spend our time wishing we had done it differently.

Or not doing anything at all because the fear of making mistakes paralyses us.

If you get it wrong, learn from your mistake and make it count by doing it differently next time.

One “failure” can – with time – help you create many successes.

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Note: Risk management is less about how you respond to risk and more about recognizing how many things can go wrong before they actually do.

18. Cautious optimism is better for your investment health than perma pessimism.

Life is not fair – get used to it.

But having said that, optimists are more successful in all areas of life than pessimists, or so-called realists (who are just pessimists in disguise).

And this includes the realm of investing.

Now, this doesn’t mean that you will necessarily be happy and smiling all day.

But it does mean that you have the ability to look at a situation and while it might be tough, you’re able to see around that corner and see the possibilities...rather than the difficulties.

Those who have high expectations usually rise up to meet them.

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Note: Pessimism always sounds smarter than optimism because optimism sounds like a sales pitch while pessimism sounds like someone trying to help you.

19. Time is a limited resource – don’t waste it

We all have 1,440 minutes every day, but some of us squander it, waste it or don’t use it efficiently.

Living through over 260 of Covid related lockdowns in Melbourne a few years ago reminded me how truly valuable time is.

You can lose money and get it back again, if you’re sick you can often get your health back again, but once the time has gone it is gone and is irretrievable.

Start to capitalise on the time you have and get a whole lot more done.

Time

The problem is many people confuse moving with progress.

Just because you’re doing a lot doesn’t mean you’re getting a lot done – I found many people just seem to be running in the same place.

Interestingly working from home has made me much more efficient, I get a lot more done in those 1,440 minutes I have every day.

Another way of looking at time was brought home to me in 2022 and that is that life is short.

On some level, most of us know that life is short, but 2022 taught us and solidified the fact that we don’t get a second chance and the importance of truly appreciating what and who we have in our lives whilst living to the fullest.

20. The only certainty is change

We all face changes every day – whether it’s as simple as a change in the weather or something as significant as another wave of the coronavirus.

Changes are a normal part of life; the problem is most of us don’t like change – we like certainty.

However, learning to expect change has brought me hope during challenging or unexpected life events.

I’ve come to realise that it’s not the circumstances or the changes that dictate how my life will go, but rather how I handle those changes and disruptions.

Rather than worrying about all the changes occurring, I’ve learned the concept of having a useful belief about the changes that are happening to me and seeing what good will come from them.

The more I feel in control of the life my life, the more comfortable I feel and the better I perform in all areas of my life.

21. Worry Better

Fact is, most things you fear will happen never do.

They’re just monsters in your mind.

And if they do happen, they’re most likely to be not as bad as you expected.

But forget the saying “don’t worry be happy; instead worry the right way – it’s better than not worrying at all.

You see…worry can play important role in your life, and it doesn’t have to be destructive.

We’re all wired to worry.

3 Prayers For When You Cant Stop Worrying Anxiety Stress American Bible Society Blog

That’s because worry had an evolutionary benefit, it drew our attention to the fact that there were some things that you should be doing while there were other things that should be avoided.

Those who worried correctly survived and evolved.

But today time spent worrying is time that you could spend identifying opportunities and taking action.

Worrying about the right things can motivate you, but if you find it unproductive, try to take your mind off things by getting engaged in other activities:

I’ve learned the trick of limiting the amount of time I worry.

I was taught the concept of telling myself to put a limit of say 5 minutes or 10 minutes on my “worry time” and then forcing myself to move on by focusing on other tasks or engaging in other activities.

It’s a good trick to learn.

22. This too shall pass

How often do we need to hear the world as we know it is coming to an end before we realise that the world as we know it has not come to an end?

I've learned that making long-term investment decisions based on short-term concerns is not a recipe for success.

The lesson?

2024 will bring its own events that will dictate our lives and financial market sentiment for a few months.

I recommend you prepare yourself to see these for what they are; a distraction.

23. 2023 was the year of AI

2023 was the year many of us learned about AI and Chat GPT and we're still trying to work out how this is going to play out in our property investments

Proptech (property technology) is revolutionising and transforming the property landscape.

Moving forward it's likely you will be utilising tools and platforms that should streamline your investment process, provide valuable insights, and manage your properties efficiently.

The bottom line

Australia’s housing is so horribly undersupplied that I've rarely encountered a supply-demand inflection point like this that requires such attention.

Locating an available property is already more elusive than finding the missing car keys.

And it’s only going to get worse.

Of course this offers an astounding real estate investment window.

See, in most asset classes, the future is largely unknown—like in stocks, futures markets, derivatives, bonds, crypto, gold, oil, and other commodities.

Sure property has unknowns too.

But there are five certainties for our housing markets now:

  • Inflation will stick around a little longer than the RBA would like
  • Interest rates will eventually fall
  • The scarcity of dwellings for both purchase and rent will not go away any time soon.
  • Rents will keep rising
  • Astoundingly good demographics and strong population growth will keep fuelling demand for housing.

It's all inevitable.

Many try to predict the future and fail.

But these 5 profitable real estate tailwinds for investors are as assured as you forgetting someone's name immediately after they introduce themselves.

It's a once-in-a-decade opportunity.

Other high-income countries like China, Japan, and much of western Europe are concerned about how their nations' aging populations are sending them over a demographic cliff.

On the other hand, Australia’s largest group of immigrants are working age tax paying, producers.

And at least to start with, they're overwhelmingly renters, not homeowners.

Sure this immigration surge may not last, depending on government policy, but even if it does slow down, the addition of an all-time record close to 700,000 immigrants in one year has left an indelible mark on real estate demand and our economy.

Residential real estate investors will own a scarce asset that everyone will need.

By embracing these insights, adapting to the changing landscape, and remaining focused on your long-term goals, you should be able to  navigate the current market and build a successful portfolio to secure your financial future.

About Michael Yardney Michael is a director 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.
2 comments

Michael I appreciate the solid steady balanced wisdom that comes through in your articles and your perspective on true values

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