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1. Have No Plan. Strategic investors have a plan, know where they are heading and follow a proven system to take the emotion out of their decisions and give them more consistent results.
They make educated investment decisions based on research and buy a property below it’s intrinsic value, in an area that has above average long term capital growth and then add value to manufacture equity.
2. Take a short-term perspective. The property market moves in cycles and in every decade there are a few years of flat or falling property prices, however well located real estate has increased in value by an average of over 8 per cent per annum over the long term.
Imagine if you could buy the house your parents bought at the price they paid thirty or forty years ago; how many properties would you have bought then knowing what those properties would be worth today?
3. Treat your investment as a waste of time. The successful investors I know have grown a substantial asset base by treating their investments like a business.
They do this by surrounding themselves with a great team of advisors, 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.
4. Think there’s only one property market. While many people generalise about “the property market” there are many sub-markets around Australia.
Each state is at a different stage of its property cycle and within each state the markets are segmented by geography, price points and type of property.
For example the top end of the market will perform differently to the new home-buyers market or the investor segment or the median priced established property sector. And while at any time there are hundreds of thousands of properties for sale in Australia, most are not investment grade properties.
5. Follow the Crowd like a Sheep. “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.
6. Say no to every investment opportunity. 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.
7. Ignore the detail. With so much market analysis available to us today, it’s easy to get caught up in the detail and scared into inaction. It’s better to keep an eye on the big picture and look at the property markets through a telescope and not a microscope.
8. Forget what type of asset your investing in. You’re in the business of property investment, yet at times investors forget the age-old rule of buying the best property they could afford in proven locations. Instead they get sidetracked by get rich quick schemes or glamorous finance or tax strategies and lose out.
Fact is…property is not a get rich quick scheme. Don’t get carried away by the next hot spot or latest fad – make your investing boring, so that the rest of your life can be exciting. Warren Buffet was right when he said; “Wealth is the transfer of money from the impatient to the patient.”
9. Don’t use the banks money to buy property. While many people worry about debt, smart investors use “good debt” and leverage to build their asset base. They then protect their assets by buying time though having a “rainy day” cashflow buffer set aside in a line of credit or offset account.
10. Forget the 2 Key drivers of property values. While in the short term our property markets will be driven by market sentiment, interest rates, supply and demand and micro-economic factors; in the long term the value of well located properties will rise propelled by the twin factors that have always driven long term property prices – population growth and the wealth of the nation. Both of which will increase substantially over the next few decades.
Learn from these lessons and the rollercoaster ride of your property investment career may not be as dramatic.
Remember both fear and greed will send you down the wrong path, but sense and sensibility will keep you heading in the right direction; toward real estate riches.