Real estate investing used to be a rather niche industry, confined to the few Australians who had significant reserves of cash and a genuine interest in the property market. These days, you could be forgiven for thinking that everyone is a real estate investor – some much more successful than others. Michael Yardney, from Metropole Property Strategists, shares the dos and don’ts of successful investors.
Kevin: You’d be excused for thinking that it’s only the rich who become property investors, and that’s a lot of the hype that’s around anyway. But that’s not necessarily the case. It’s not also that everyone can become a real estate investor – or that is, a successful real estate investor. Many people try it; many people fail. Why is that? What happens?
I’m going to talk to Michael Yardney from Metropole Property Strategists who hopefully will give us a few dos and don’ts and some of the reasons why some people become very successful at this and why some others fail.
Michael: Good morning, Kevin.
Kevin: Michael, what are some of the dos and don’ts?
Michael: Maybe we should start with the dos that I’ve found important seeing lots of other property investors and their successes. I think the first one is do your homework. It’s important to do the homework and research by getting a system, getting a strategy, and understanding where you’re heading.
Most people who I’ve found buy an investment property – naïve beginning investors – just buy one because they think they know about real estate because they live in a house or rent somewhere. They find something and think, “Ah ha! I know how property works.” That’s not the case at all, Kevin.
Kevin: No, it’s not. I think a lot of people have come unstuck by thinking. The other thing I’ve found, too, is that good people make things look so easy. It does look easy, but there are some systems. One of the things I know about you is that you do actually think long-term.
Michael: Kevin, I think in all elements of life, those people who have a longer term view and are able to delay short-term gratification for long-term success get ahead. In property, it’s delaying short-term cash flow for long-term capital gains.
The lessons you would have taught our kids is yes, you have to go to school, you have to go to university, you have to actually delay the instant gratification of cash and money and lifestyle because later on you’re going to get a career. Thinking long-term is one of the characteristics of all successful people.
Kevin: It occurred to me, too, and you were kind enough to ask me to come along to your retreat at the Gold Coast recently, the Wealth Retreat, and there were a great number of people there, very successful people. When I was talking to them, the thing I noticed is that they all have goals, and one of the reasons why they go to the retreat is to set their goals for the next year.
Michael: Yes, Kevin. That’s one of the dos that all successful people – including property investors – do. You actually have to know where you’re heading. Inside your head, there is a system called your reticular activating system. That’s your own GPS, your pathfinder that will actually point you towards where you’re heading. But if it doesn’t know where you’re heading, it can take you anywhere.
You have to have goals, not just dreams, not just ambitions. Write them down. Know what you’re wanting to achieve, where you’re wanting to go, and then do what you have to do to get there, Kevin.
Kevin: Most people I talk to will say they have goals – and you made a very good point there about writing them down – the moment you say, “Show me,” they can’t because they’re simply not written down. We do know the difference between not writing them and writing them. There’s a huge chasm there.
Michael: Very much so, because we all wake up in the morning, have a shower, have a dream, and think “I want to do this” and “I want to do that,” and then life gets in the way. That’s why having written goals… A lot of people actually find having pictorial goals, having pictures up of their dream home, their dream investment portfolio, or their dream car works well for their reticular activating system, too, pushing them ahead towards achieving those goals.
Kevin: How important is it to reward yourself, to celebrate your successes?
Michael: That’s something I learned from one of my mentors along the way, too. There are challenges so you have to enjoy the journey, otherwise you’re not going to enjoy the destination. Yes, have some little celebrations. Give yourself a little gift. Take the family out. Reward your life partner, as well, because they’re coming along on the journey with you.
Kevin: Keeping your feet on the ground is pretty important, as well, isn’t it?
Michael: Maybe the last two we should discuss is to be realistic – understand why you want to be a property investor, understand what financial freedom is going to mean to you – and then have a realistic timeframe and a realistic goal. Sometimes you read in the magazines to buy ten properties in ten years. That’s too hard and it doesn’t work.
I’ve found most property investors take up to 30 years to become financially independent. They first of all spend the first eight to ten years learning what not to do, and then they have to unravel it, improve themselves and have to spend a couple of good property cycles growing their goals.
Have realistic expectations of what property can and can’t do for you and what you can achieve in life, and then you won’t get disappointed, Kevin.
Kevin: We’ve given you the dos. Let’s have a look at some of the don’ts. What are some of the things that we shouldn’t be doing or even changing what we’re doing, Michael?
Michael: I think first, just don’t rush into it. I find people get all excited about the concept and then they buy the first property they’re going to see. It’s often close to where they live, close to where they grew up, or close to where they holiday or want to shop. Actually, make an informed strategic decision. There are times when you have to make a quick decision, but it has to be based on the level of information, knowledge, homework, and perspective.
Kevin: Michael, one of the things I know is the reason a lot of people rush into it – and you use the word “strategy” or “strategic” – is because they don’t have a strategy; they don’t have a plan.
Michael: That doesn’t give them the perspective to decide is it or is it not a good opportunity? We’re continuously bombarded with opportunities on the Internet or if you go to open for inspections or estate agents recommending things to you, so it’s best to sit back and evaluate each opportunity based on your personal strategy.
Kevin: What about basing it on the fact that it’s just simply cheap?
Michael: We all want to get a good price, we all want to get good value, but unfortunately, I’ve met quite a few investors over the years who have come to regret buying that cheap property because it wasn’t cheap; it was a secondary property in a bad location, in a regional area that didn’t have growth, or had structural problems.
I remember Warren Buffet’s famous saying, “Price is what you pay; value is what you get.” Don’t buy cheap properties; buy well-priced, good properties.
Kevin: I was talking to someone the other day who made a great statement and said, “We all thought that buying the worst house on the best street was a great idea, but sometimes if you do that, you’re actually going to be paying too much for the worst house on the best street because the value in the area has probably gone up anyway.”
Michael: That’s right, Kevin.
Kevin: It’s interesting – isn’t it? – some of these beliefs that we have. Michael, is there another one?
Michael: Yes, Kevin. Don’t misjudge your cash flows and don’t forget to have the right financial buffers in place. By that, I’m talking about understanding the expenses of owning an investment property, the regular outgoings, so allow for those, and allow for the ups and downs that are going to happen in the world, whether it’s interest rates, whether it’s vacancies, whether it’s unexpected repairs.
That’s why the job of a property investor is to buy themselves time – not just properties – to ride all those ups and downs. Having an offset account or a financial buffer as we sometimes call it, where you have some cash to see you through, is going to make life so much easier and you won’t have that white-knuckle ride of the ups and downs of the property market.
Kevin: I guess it doesn’t have to be a lonely journey either, does it? I’ve heard you talk about building a team, and I guess understanding your cash flow would mean that you’re going to have to have a pretty good accountant on your side, as well.
Michael: An accountant, a good finance strategist, and a good team. That’s another really good don’t: don’t try and do it on your own. Property investment is a team sport and if you’re the smartest person on your team, you’re in trouble. I’m prepared to pay for advisors, counselors, mentors.
Interestingly, that’s one of the common traits of all of the wealthy people. When you see them, they have financial advisors and they pay for them. When the poor, in general, don’t pay for financial advice; the financial advice they get is the free information they get on the Internet – and that, at best, will keep them average.
Kevin: Great talking to you, Michael. Thank you very much for sharing so much information with us twice. We had you twice on this show, so we’re going to have to pay you twice as much, I suppose. Do we?
Michael: That’s one of the don’ts of property investment.
Kevin: Good on you, Michael. Michael Yardney from Metropole Property Strategists. Great talking to you. We’ll see you again next week, mate.
Michael: My pleasure, Kevin.