[Podcast] The 4 most dangerous words in property investment, with Brett Warren

One of the best parts of being involved in the property markets is that I’m continually learning.

However, one of the things I’ve learned from history is that we don't learn from history.

How often have you heard people say this time is different when really it isn't?

Some things just don’t change.

In today’s podcast, I chat with Brett Warren, national director of Metropole and we discuss some of the lessons I’ve learned from history and talk about some things that don’t change to help give you some clarity and direction in these interesting challenging markets.

Is this time different?

One of my early mentors taught me that the four most dangerous words a property investor could say were...

“This time, it's different.”

Unfortunately, I ignored his advice in my early days of investing to my detriment, as I found that history does, in fact, repeat itself.

But we are hearing people say that again now.

You just must trawl the Internet and look back over the last 20 years, and you'll two extreme opinions about Australia's property markets:

1. One group has been suggesting the property markets are going to implode.
2. Another has been suggesting we are in for consistent long-term capital growth in property values.

In my view, the extremists, in both directions, will be wrong.

Yes - history does repeat itself and having invested for almost 5 decades, I’ve learned some lessons.

Probably the most important lesson I have learned is never to get too carried away when the market is booming or too disenchanted during property slumps.

Letting your emotions drive your investments is a surefire way to disaster. And a lot of these opinions are emotion-based rather than evidence-based.

Lesson 1. Booms don’t last forever

During a boom, everyone is optimistic and expects the good times to last forever, just as we lose our confidence during a downturn.

Our property markets behave cyclically, and each boom sets us up for the next downturn, just as each downturn paves the way for the next boom

Going forward over the next decade, we’re likely to have another recession, but I’m not sure when.

And we might even have another depression one day – because history repeats itself.

The lesson from all this is: get prepared for the next phase of the property cycle.

Lesson 2. Understand the difference between Expectations and Forecasts

As I said, I expect there to be a recession in the next decade.

But I don’t know when it will come.

I expect that some investments I make won’t do as well as I would like.

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

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

You see…there’s a big difference between an expectation and a forecast.

An expectation is an acknowledgment of how things worked in the past and will likely work in the future.

A forecast is putting a time frame to that expectation.

I’ve found it’s more practical to have expectations without specific forecasts.

That’s because when you expect something to happen at some stage in the future, you’re not surprised when it comes.

It forces you to invest with room for error and psychologically prepares you for the inevitable disappointments.

Lesson 3. Beware of Doomsayers

As long as I have been investing, I remember hearing people with excuses why property values will plummet.

However, during that time, well-located capital city properties doubled in value every 10 years or so.

Sure home values languish at times, and of course, property prices will fall a bit during this slump stage of the property cycle, but the value of well-located properties in our capital cities doesn’t “crash.”

They’re underpinned by the large percentage of homeowners that don’t jump ship when the market turns.

Lesson 4. Follow a System

Strategic investors follow a system to take the emotion out of their decisions and ensure they don’t speculate.

This may be boring, but it’s profitable.

Let's be honest; almost anyone can make money during a strong property market because the market covers up most mistakes:  A rising tide lifts all ships

But many investors without a system found themselves in financial trouble when the market turned.

Lesson 5. Get Rich Quick = Get Poor Quick

Real estate is a long-term proposition, yet some investors chase the “fast money.”

You’ve probably met people like that - they look for that one deal that will make them fabulously rich.

When you see them a year later, they’re usually no better off financially and still talking about the next deal that will make them rich.

They are often influenced by the latest get-rich-quick artist with a great story about how you can join them and become stupendously wealthy.

Their stories can be very compelling, even hard to resist, and they usually pander to the wishes of people who would like to give up their day job to get involved in property full-time, but in reality, it takes most people many years to accumulate sufficient assets to do this.

Patience is an investment virtue.

Lesson 6. It’s about the property

You’re in the business of property investment, yet during the last boom, many investors forgot the age-old property fundamentals of buying the best property they could afford in proven locations.

Strategic investors do it differently….

They make educated investment decisions based on research and buy a property below its intrinsic value in an area that has experienced above-average long-term capital growth and will continue to do so because of the demographics of the people living in the area.

These are just 6 of the many lessons that I have learned over the years.

Links and Resources:

Michael Yardney

Brett Warren – National Director Metropole Property Strategists

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Some of our favourite quotes from the show:

“If you’ve got the expectation, it makes you a better, different investor.” – Michael Yardney

“I’m not suggesting that property values always go up. What I’m saying, though, is you’ve got to play the long-term game.” – Michael Yardney

“Property investment is a process that needs a whole lot of decisions to be made, and only then do you buy the property.” - Michael Yardney

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