Recently one of my sons, who has taken a keen interest in property investment, asked:
“Dad – what’s the worst advice you’ve ever been given on real estate investing and what’s the best advice you could give me?”
The worst advice:
I explained that the worst real estate investment advice I was given was that property investment is easy.
This was clearly wrong because most property investors fail!
Look at the facts – 50% of those who get into property investment sell up in the first 5 years and of those who keep their properties, the vast majority never ends up owning more than one or two properties.
This means they don’t ever achieve the financial independence they desired.
However over the years I found property investment is simple, but not easy. And that’s not a play on words.
It’s simple if you follow a proven formula but it’s really hard to become wealthy in property if you do what everyone else is doing.
While many investors chase cash flow or the next hot spot, I’ve found successful investors build their asset base.
Over the years I have developed a 5-stranded strategic approach to property investment that ensures the properties I buy a property will outperform the market averages.
- I buy the type of property that has wide apeal to owner occupiers (who make up the bulk of property purchasers)
- I buy a property below its intrinsic value. (So I don’t pay a premium for new or off the plan properties)
- In an area that has a long history of strong capital growth and one that will have strong future capital growth because of the demographics in the area ( rising disposable income or maybe gentrification.)
- I look for a property with a twist – something unique or special or different or scarce about the it.
- And a property where I can “manufacture capital growth” through refurbishment renovations or redevelopment.
This means I minimise my risks and maximise my upside as each strand represents a way of making money from property and combining all five is a powerful way of putting the odds in my favour.
If one strand lets me down, I have two or three others supporting my property’s performance.
The best advice I’ve been given:
When I first became involved in property investment I didn’t understand the cyclical nature of the property market – my only experience was a rising property market.
An early mentor taught me to prepare for the lean times by having a cash flow reserve to see me through the down times of the property cycle or to handle unforeseen expenses.
Rather than use my full borrowing capacity and buy the most expensive property I could afford, I learned the concept of setting aside a buffer.
While I initially was concerned that I was not using my full borrowing capacity, having this safety net helped me get through the high interest rate period of the early 1990’s, while many other investors had to sell up their properties.
It’s a lesson I’ve never forgotten and has let me sleep peacefully at night through 5 property cycles.
Another piece of good advice – treat your property investments like a business
Over the years I’ve seen a small group of property investors, those who treat their investments like a business, become very, very rich by growing a multi-million dollar investment property portfolio.
They do this understanding “the system” and getting the right type of finance, setting up the correct ownership and asset protection structures and knowing how to legally use the taxation system to their advantage.
Let’s face it; the majority of Australians will be always be employees but we all have the ability to become financially free by becoming property investors who treats their investments like a business.
And you can set up your own property investment business while you are still an employee or self-employed.
In fact that’s what I did and what almost every wealthy property investor I know has done.
They built their wealth by growing their real estate portfolio one property at a time.
While this was going on they lived off the income they earned from their day job.
They started off with one property, then leveraged off its capital growth to invest in another and another until one day they found themselves with a true property investment business.
One that gave them financial freedom and choices in their lives.
What’s the best or worst advice you’ve been given?
Please leave your comments below.
Here’s some extra advice I’d like to offer you…
If you’re interested in securing your financial future through property investment, now may be a good time to buy property – the property markets are moving before our eyes.
And if you’re looking for independent advice, no one can help you quite like the independent property investment strategists at Metropole.
Remember the multi award winning team of property investment strategists at Metropole have no properties to sell, so their advice is unbiased.
Whether you are a beginner or a seasoned property investor, we would love to help you formulate an investment strategy or do a review of your existing portfolio, and help you take your property investment to the next level. Please click here to organise a time for a chat. Or call us on 1300 20 30 30.
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