24/03/2016
March 17, 2016
Why haven’t you invested in property yet?
Posted by: Michael Yardney
By MICHAEL YARDNEY
You’re reading about it, so clearly you’re interested in property investing. So, why haven’t you done anything about it?
In my experience, the number one reason some people can’t take that first step is fear. There’s excellent evidence to support the notion that wealth can be created through investing in property – so why are people so scared of it?
I’ve dealt with countless would-be investors over the years, and here’s what I’ve discovered…
First of all, there’s very little education about finance and budgeting in schools, especially in the areas of investing beyond compound interest. As a result, we grow up absorbing our parents’ management of money and their attitude toward it. We’re often taught that debt is bad and the path to our nest egg involves putting our pennies in our superannuation funds. This thinking is handed down from previous generations who wholeheartedly believed and practised this circle of life.
There are also ingrained beliefs in our culture that the timeline of life involves studying hard, working hard, getting a good job, buying a home, paying it off and being sensible with our money, so we can save up a little nest egg to retire on. Following this path means that our twilight years will involve living on less money than during our working years.
All of these financial beliefs can be true, to an extent:
• A huge percentage of Australians will, in fact, retire with far less money than they can comfortably live on.
• We absolutely should be smart with our money and stay away from bad debt.
• We should work hard and retire easy.
But there is another way of thinking when it comes to money – and the people who go down this path are generally going against the grain of the time-honoured “way it’s always been done”. These people choose to veer from the safety of the well-worn path and carve out their own trail.
Of course, that’s why the fear of failure is so widespread. It means stepping away from the familiar understanding of money that we were brought up with. Property investment involves debt, and that can put people ill at ease – especially when we’re taught to pay off debt, not accumulate it!
Yes, it’s right to be cautious when borrowing money, but it’s also important to understand the difference between good debt and bad debt.
A solid investment property plan is all about good debt that works for you. Find a good mortgage broker to look at your finances and work out what you can and can’t do, and this will help you to greatly minimise your risk.
But what about all those investors who fail?
If you’re worried about the investors who don’t do well out of property – and the truth is, there are a lot of them – I can tell you the reason – they’ve often succumbed to the basic no-nos of real estate:
• They bought with emotion
• They didn’t do their research
• They bought the wrong property in the wrong location
• They bought too much, too fast and got in over their heads
• They over-capitalised, or over-paid, or made one of a dozen other mistakes that investors can make when purchasing property without a clear strategy.
Buying real estate as an investment is vastly different to buying your own home. When it comes to buying property for rental purposes, it’s all about numbers, facts and projections – there should be no emotion involved.
If the numbers don’t work out (think rental income, future capital growth, and supply and demand), then you need to look elsewhere. This is an area where many investors go wrong, with costly ramifications.
Remember how I said that successful investors often walk off the well-worn path? They do so, but they don’t do it blindly. They have a map that keeps them on track, helps reduce the risk, and teaches them as they travel forward.
This is a starting point to show you what constitutes a good “map” for you to follow on your real estate investment path:
1. A solid education
Firstly, educate yourself and increase your knowledge bank, but be careful who you learn from. Read books and blogs, and talk to friends and colleagues who’ve successfully invested.
Start to fill your head with other people’s knowledge and gain some confidence in how property investment works. You’ll find it’s not as scary as it might seem at first.
2. An A-Team of advisors
Educating yourself is important, but surrounding yourself with those who specialise in certain fields is just as crucial. The smartest investors find people who know more than them, so they can leverage their expertise.
Your team may consist of a knowledgeable finance broker, a property strategist or buyers’ agent, and a tax and structuring advisor.
It’s pivotal to your success that you are receiving quality and trustworthy information from independent people who really know their stuff.
3. Get a mentor
Mentors are invaluable.
They are people who’ve already walked the path ahead of you and can help you make sensible decisions and avoid costly mistakes. Usually, they’ve learnt those mistakes the hard way and are wiser for it. Their success and encouragement will spur you on to stick to your investment plan and continue to build your portfolio.
4. Fear should be your motivator, not your obstacle
Many investors are wary about taking action as they’re fearful they’ll make a wrong decision – but shouldn’t you be more afraid of retiring without enough money to live on?
Be afraid of working until you’re 70! For many Australians, their harsh reality is that they’ll be working well into their 70s simply to survive. To me, that indicates that it’s time for the old way of thinking to be refreshed, to ensure fear doesn’t stop would-be investors from walking a successful path to a financially secure future.
