I know a reasonably common Google search is “what is Michael Yardney’s net worth ?”
In fact, a question I’m asked frequently is, "Michael, what’s your net worth?"
And while I can understand that this may be of interest to some people, I’m sorry to disappoint you…
I don't answer this question with a definitive number, but I'm always happy to talk to people about how I achieved my financial success in the hope that they can learn some lessons they could use.
I usually explain to them that throughout my journey I've had more than my share of failures (both personal and financial and many of them self-induced) but I’ve been lucky to also have my share of successes.
Well, maybe it wasn’t luck, because the more I learned about success, in all areas of life, the more I realised that luck has very little to do with it.
So what is net worth?
Net worth is the amount by which your assets exceed your liabilities.
Fact is: all wealthy people have built a substantial asset base – it could be in property or shares or businesses.
However, while the rich quietly and steadily build their asset base, the average Australian works hard trying to increase their cash flow.
Either they try to earn more by working harder or longer (you’ll never get rich this way) or they look for properties that will give them positive cash flow.
The problem is you can’t get rich through cash flow.
Now don’t misunderstand me, cash flow is the ultimate aim — but that’s only once you’ve built your asset base (your net worth.)
This means your investment journey will comprise three stages:
- The Accumulation Stage — is when you build your asset base (net worth) through capital growth of well-located properties.
You can speed up your wealth accumulation through leverage, compounding time, and “manufacturing” capital growth through renovations or development.
- Transition Stage — once you have a sufficiently large asset base, you slowly lower your Loan to Value ratios so you can move on to the …
- Cash Flow Stage — now you can live off your property portfolio and enjoy the longest holiday of your life.
Growing your net worth with property
Personally, I’ve used property as my wealth creation vehicle because it provides:
- High capital growth (if you own the right type of property), which grows your net worth, and;
- Secure income, which increases over time (helping you pay the mortgage).
And while it takes a few decades to grow a sufficient size asset base to become financially independent there is a way to speed this up.
You see the wealthy have learned to use…
The power of leverage
Have you ever wondered why it’s easier for people who have money to make more of it?
I mean, why is it that the second and the third million are so much easier to earn than the first?
Do you want to know what the biggest difference is between how wealthy people build wealth and how the poor and middle-income people do it?
It’s how they use leverage and I’m not just talking about borrowing money.
In my experience, there are at least four ways successful investors use leverage.
One of the biggest differences between how wealthy people and the average Australian go about building wealth isn’t how they invest the money that they have… it’s how they leverage and use the money they don’t have that makes them wealthy.
You see, the average Australian rarely uses leverage in any focused or strategic way, partly because they are afraid of taking on debt.
On the other hand, the wealthy investor has mastered the art of using money that they don’t have – other people's money – to build their wealth.
They use borrowed money to magnify their investment activities and enjoy enhanced accelerated returns.
They take on more debt and borrow, gear, or leverage their assets to own even more assets.
Yet the average Australian is frightened of taking on more debt.
This is a huge difference in mindset.
When you have a more sophisticated understanding of the rules of using leverage, you are able to literally use it to take your wealth-building to the next level.
When I look at an investment, I don’t ask myself, “Can I afford this property?”
Instead, I ask myself, “How can I strategically use leverage to help pay for this investment in a way that enhances my overall return without taking on more risk?”
You can also leverage your relationships or your network so successful investors build a great team around them – I know I have.
I also understand I don’t have to be an expert in every field if I develop a good network.
For investors, this network may include a good finance broker, a smart solicitor, a property savvy accountant, and a knowledgeable property strategist.
Successful investors also have one or two mentors and they may belong to a mastermind group.
This is a group of like-minded people who encourage each other and act as “unreasonable friends” helping each other push forward towards their individual goals.
Having a great network around you enables you to leverage off other people’s expertise.
I often say “if you are the smartest person in your team then you are in trouble.”
Your network of relationships is critical to growing your wealth, not just for what they themselves know, but often for the people they know who could also help you.
Successful investors have also learned how to leverage their time effectively.
Many first-time investors waste so much time trying to do everything themselves.
Successful investors value their time and have learned to leverage it by putting it to its highest and best use.
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They do this by outsourcing minor tasks to their property manager and to other contractors.
Instead, they use their time to learn more, develop their relationships or find more deals.
4. Your mind
One of the greatest points of leverage is leveraging your “mind”, which means that successful property investors generally just think differently to the average person.
The not-so-rich have a different way of thinking – a different “reality”.
To put it simply your reality is what you think is real, in other words, your perception is your reality.
What stops many people from becoming successful investors isn’t what they know or don’t know.
They may say things like:
- I can’t afford that
- I can’t do that
- I already know that
- That’s wrong
- I tried it once and it didn’t work
- That’s impossible – you can’t do that.
If you want to become truly wealthy, you will need to open your mind to new ideas and develop the skills to take on the possibilities greater than your current abilities.
I remember Robert Kiyosaki saying in one of his "Rich Dad Poor Dad" books that: “a cynic’s reality doesn't let anything new in, while a fool’s reality doesn't have the ability to keep foolish ideas out.”
You can also leverage your skills, your creativity, your intellectual property, your net worth, and your reputation to build wealth.
Back to how I grew my net worth…
When I first started investing I really didn’t know what I was doing and I made more than my share of mistakes.
"Luckily" around the time I bought my first property in the early 1970s, Gough Whitlam became prime minister and inflation in Australia rose from 5 per cent to more than 15 per cent.
It’s amazing how rampant inflation pushes up property values and helps cover up mistakes.
I bought my second property a few years later, using the increasing equity and rent from my first investment.
The problem is, one of the worst things that can happen to a novice property investor is to get it right the first time!
It gave me a false sense of confidence and invincibility.
Over the next few years, I bought and sold (another mistake) a few more properties until rising interest rates, a recession, and falling property values in the early 1980s taught me a few important lessons about the cyclical nature of the property.
Over the years I developed an investment strategy - I really didn’t have one when I started - and this made my investment results more predictable and reproducible.
It also took the emotion out of my investing.
This has morphed into my…
6 Stranded Strategic Approach
I use this to ensure I only buy the type of property that will outperform the averages:
- I buy a property below its intrinsic value – that’s why I avoid new and off-the-plan properties that come at a premium price.
- In an area that has a long history of strong capital growth and that will continue to outperform the averages because of the demographics in the area.
This will be an area where more owner-occupiers want to live because of lifestyle choices and one where the locals will be prepared to and can afford to, pay a premium price to live because they have high disposable incomes.
I buy in these more affluent areas because not only do the local residents have more money but so do the tenants.
I recognise that my future cash flow will be dependent on my tenant's ability to keep paying their rent and keep paying higher rent.I buy the type of property that would appeal to owner-occupiers because they’re the ones that drive up property values.
- I buy a property with a high land-to-asset ratio - now that doesn't always mean a big block of land - it could be a valuable piece of dirt under an apartment in a great location.
- I look for a property with a twist – something unique, special, different, or scarce about it, and finally…
- I buy a property where I can “manufacture” capital growth through refurbishment, renovations, or redevelopment.
The secret to building your net worth
So there you have it, the story behind Michael Yardney's net worth.
While there’s no “secret” to achieving significant net worth, there is a strategy.
Mine was to firstly build my asset base through capital growth and only then, once I’d built a substantial asset base, to move to the “cash flow” stage of investing.
It also involves having a strategy and following a plan.
I recognise that property investment is a process – not an event.
In fact, it's a long-term process over multi decades.
Capital growth first, then cash flow.
A big mistake I see many investors make is chasing cash flow positive properties and never achieving a sufficiently large asset base.
Now I know that’s not what most people teach – but if I didn’t tell you something different to most people you’d be surprised wouldn’t you?
If you want to get a different result to most investors, you’ll have to do things differently – there’s simply no other answer!
Of course, I understand why many beginning investors want cash flow. It's because they need more cash flow - they haven't got enough cash.
The trouble is if they haven't learned financial discipline and how to manage their money, taking on the debt required to invest in property only compounds their money problems – it doesn't help them.
Residential Real Estate is a high growth, relatively low yield investment.
Over the years the increasing value of my properties gave me the equity for my next deposit and the increasing rent (because the values of my properties increased faster than cash flow type properties) helped pay the mortgages.
In other words, while I had to save a deposit for my first property over the years the deposit and serviceability for future properties came from my existing property portfolio.
So I buy properties to enable me to buy more properties.
Then once I grew a substantial asset base, the next stage in growing my net worth was to slowly lower the loan-to-value ratio of my property portfolio and then to start living off my “cash machine” of properties.
While cash flow management was important to keep me in the investment game, it was really capital growth (my increasing net worth) that got me out of the rat race!
Now that I have a very substantial asset base, I balance my higher growth residential properties with retail, industrial and commercial properties that deliver stronger cash flow but lower capital growth.
And that my friends is my strategy for property investment success and how I achieved a net worth that provides me with the life, and the lifestyle, that I always wanted.
So you might not know Michael Yardney's net worth, but hopefully, this article has helped you realise your own pathway to success.