The best and worst property investment advice I've received: Michael Yardney
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 five 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 have found that 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 cashflow or the next hot spot, I’ve found successful investors build their asset base.
Over the years I have developed a four-stranded strategic approach to property investment that ensures the properties I buy will outperform the market averages.
I buy a property below its intrinsic value.
In an area that has a long history of strong capital growth
I look for a property with a twist – something unique or special or different or scarce about 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. Combining all four 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 cashflow 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 was initially 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 1990s, 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 five 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 requires understanding of “the system”, 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 your 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 treat 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.
Michael Yardney is a director of Metropole Property Strategists.