2022 was an extraordinary year, wasn't it?
And for most of us, it's also been a return to our daily lives of family, work, leisure, and vacations.
However, looking back to this time last year, who would have thought that we would have 8 interest rate rises in as many months, that inflation would be rampant, or that there would be a war on the other side of the world that would last for almost a year?
Nobody could have foreseen all that’s happened, including the severe slump in consumer confidence because of all the economic uncertainty or the coronavirus lingering.
But as we’re now well into 2023, 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 into this New Year.
And I'd like to share them with you today to help make 2023 a great year for you in your property journey.
Lessons from 2022
At the end beginning of every year, I sit down and conduct an Annual Review.
I’ve been conducting this self-reflection exercise for well over a decade now.
The goal is to zoom out to 10,000 feet and take a macro view of the property lessons I learned or relearned in the previous year, and I’d like to share those with you.
- 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 Delta outbreak in 2021 or the war in Ukraine in 2022.
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.
- Focus on the long term
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.
- 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.
- Take economic forecasts with a grain of salt
Remember all those forecasts that unemployment would reach 10% or more?
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.
- Don’t believe the Doomsayers
Don't listen to these Property Pessimists 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.
Predictions, opinions, and forecasts should be discounted by the number of times the person making them is on TV each week.
- No one really knows what’s going to happen to the property markets
Be careful whose forecasts you listen to.
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.
- 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.
- 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.
- 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.
- Property Investment is a game of finance with some houses thrown in the middle
Strategic property investors have a finance plan to buy themselves real estate and 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.
- 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.
- 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 convert it to cash flow.
- There will always be reasons not to invest
Investors get into trouble because 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.
- Property investment is risky in the short-term, but secure in the long term
The last year reminded many property investors that real estate is not a way to get rich quickly.
Property values don't always increase.
Every past decline looks like an opportunity, and every future decline looks like a risk.
- Plan for the worst and look forward to the best
As a property investor, I protect myself from the challenges to our property markets brought about by the pandemic by:
- Owning the right assets and 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.
- 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.
- 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.
- Cautious optimism is better for your investment health than perma-pessimism.
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.
- Time is a limited resource – don’t waste it
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.
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.
- The only certainty is change
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 to hope during challenging or unexpected life events.
- Worry Better
The 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.
- This, too, shall pass
How often do we need to hear the world as we know it is coming to an end before we realize 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.
2023 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.
Links and Resources
Get a bundle of eBooks and reports = www.PodcastBonus.com.au
Some of our favourite quotes from the show:
“Strategic investors invest in the type of assets that have always worked, not just those that work now.” – Michael Yardney
“Beware of taking financial cues from those who are playing a different game than you.” – Michael Yardney
“I don’t make forecasts. Instead, I have expectations.” – Michael Yardney
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