04 July 2013 5 keys to successful property investing

It never ceases to amaze me how people with the least knowledge and experience can often have the strongest opinions.

I’m referring of course to those who make sweeping generalisations about the property market and where it’s going.

I was at a couple of media functions recently and came across these types who were going on and on about how risky the property market is at the moment. They said the Australian economy was slowing down and there was a 20% chance it could fall into recession. This would be bad news for property investors.

Curious as to what gave these opinionators the cred to spout such views, I asked them if they were property investors themselves. Predictably, their answer was no, never invested in one. Ah, that makes sense.

Listening to these people talk made me realise how much noise there is in the market. If you followed all the chatter and believed these prognostications by the so-called experts, you too would be scared to make a move.

So what should you do?

1. Ignore what everyone else is doing.

Many investors follow the herd and get too caught up in watching and copying what everybody else is doing. This leads to overreaction to bad news and unfettered bullishness in response to good news. Don’t let other people influence your investment choices and strategy.

Instead, focus on your own investment criteria. Don’t compare your portfolio to others’. Their situation and therefore their investment choices may be radically different to yours. What works for them may not work for you. As Warren Buffet once said, the key is to “be fearful when others are greedy and greedy when others are fearful”.

 2. Turn down the noise.

There is simply too much information available at the moment. While this is great in helping you do your due diligence and make better investment choices, the information overload could also paralyse you.

There will always be bad news about the economy or the world as a whole. But remember that property markets have remained resilient.

According to Shane Oliver, chief economist at AMP, the average annual return on Australian property (11% pa) has been double that on Australian bonds (6% pa) over the last 113 years. Yes, more than a century of solid track record.

To put it another way, $1 invested in bonds in 1900 would today be worth $704, whereas $1 invested in property would now be worth $350,356.

As Oliver puts it, “Yes, there were lots of rough periods along the way for property, just like the last few years, but the impact of compounding at a higher long-term return is huge over long periods of time”.

3. Focus on investments offering sustainable cash flow.

Yes, capital growth is what makes you rich. But you need cash flow to hold on to your investment.
Getting both in the current market has become easier, thanks to lower interest rates and still-attractive price points.

4. Realise that your aim is to make money, not to be right.

Which would you rather be, rich or right? Many investors miss this, says Oliver. Many investors have lost money doggedly following some assessment that they were sure would be right, perhaps out of pride.

But it’s important to understand that getting the view right is not what investing is all about. It’s about making money. It’s important not to get hung up on extreme views about where markets are going, and instead to focus on your clearly defined strategy.

5. Invest in the long term.

You’ve heard it before, and I’m going to say it all over again: property should be treated as a long-term investment.

There’s really no better way to maximise your profit and avoid losses. When you hold your investment over the long term, you’re able to ride the peaks and troughs of the markets. When you adopt short-termism, you’re exposing yourself to potential losses due to high entry and exit costs.

As Oliver advises, if you have the right long-term strategy, you need not despair: “Things normally turn out OK eventually. Fortunes are invariably made out of tough times.”

Reproduced in full with permission: Your Investment Property 5 keys to successful property investing accessed 21 June 2013

Attention: This article is intended to provide general information only. Every attempt has been made to ensure the accuracy of this information at the date of publication. The opinions expressed in this article do not reflect those of DHA, its staff or agents. Property prices are subject to fluctuation. Prospective investors should seek independent advice. DHA will not be liable for any loss, damage, cost or expenses incurred or arising by reason of any person relying on information in this article.