{"id":6216,"date":"2015-11-04T01:00:43","date_gmt":"2015-11-03T14:00:43","guid":{"rendered":"http:\/\/realestatetalk.com.au\/?p=6216"},"modified":"2015-11-04T01:00:43","modified_gmt":"2015-11-03T14:00:43","slug":"where-do-investors-go-wrong","status":"publish","type":"post","link":"https:\/\/channels.realty.com.au\/realtytalk\/where-do-investors-go-wrong\/","title":{"rendered":"Where do investors go wrong? – Michael Yardney"},"content":{"rendered":"

 
\nIn today’s show\u00a0Michael Yardney<\/a><\/strong>,\u00a0\u00a0from Metropole Property Strategists,\u00a0tells us the two things 90% of investors fail to do and as a consequence do not maximise the potential of their portfolio.
\n <\/p>\n

Transcript:<\/h4>\n

Kevin<\/b>:\u00a0 I often wonder with about 1.7 million property investors in Australia why so few get past just one property. There has to be a reason for this, and I\u2019m sure my next guest will know, Michael Yardney from Metropole Property Strategists.
\nMichael, where do investors go wrong? Why don\u2019t they grow their portfolio this way?
\nMichael<\/b>:\u00a0 I think those investors who fail do so because of the things they do, and successful investors are successful because of things they choose not to do.
\nKevin<\/b>:\u00a0 Well, you\u2019ll have to explain that a bit more.
\nMichael<\/b>:\u00a0 I think successful investors have formulated an investment strategy, so they don\u2019t get carried away by all the fads and all the fashions and all the new fancy toys. That\u2019s one reason. I think the other thing successful investors do is they regularly review their portfolio\u2019s performance. They treat it like a business.
\nKevin<\/b>:\u00a0 I want to dig a little bit deeper into those two, Michael. Let\u2019s deal with the first one \u2013 having a formula. I know that you have one. Can you take us through that?
\nMichael<\/b>:\u00a0 Sure. My formula is basically relying on capital growth to build an asset base. Once you have an asset base, then what you do is slowly lower your loan-to-value ratios and live off your property. To choose those properties that are going to outperform the averages, we use a top-down approach to find the right states, the right locations, the right areas in those locations, and the right properties, Kevin.
\nTo me, the right property is one that\u2019s going to appeal to a wide range of owner-occupiers, because it\u2019s owner-occupiers who push up property values of similar properties to make your property increase in value. I buy properties below their intrinsic value, so I don\u2019t buy off the plan. I don\u2019t buy new properties, Kevin.
\nKevin, I buy in the areas that are going to outperform because I examine the demographics, the locations where people who have higher disposable incomes want to live. I like buying properties with a twist, something a bit unique, a bit different, a bit special, and I like buying properties where I can manufacture capital growth by doing renovations or by doing redevelopment \u2013 things like that, Kevin.
\nKevin<\/b>:\u00a0 So any property that you look at for your portfolio or anyone who you\u2019re advising, Michael, they have to follow those five tests?
\nMichael<\/b>:\u00a0 Well, the five-stranded approach means that I\u2019m going to more likely outperform the market. If one or two of those strands doesn\u2019t work, I still have two or three other strands to make sure that my property is going to be stable \u2013 it\u2019s not going to go up and down in value much \u2013 and it\u2019s going to grow significantly.
\nWhat that does is give us the maximum opportunity of getting the capital growth to get the equity to buy the next property, Kevin. That\u2019s why most only stop at one, like you said. They don\u2019t get the capital growth.
\nKevin<\/b>:\u00a0 Michael, I guess having an approach like that, sometimes you are going to get it wrong. That leads us into the second part of this, and that is reviewing your portfolio.
\nMichael<\/b>:\u00a0 Yes. I think that\u2019s another big mistake that those who don\u2019t succeed do. They actually buy and set and forget. If they treated it like a business, they wouldn\u2019t do that. I believe it\u2019s important to annually look at how your portfolio is performing and ask yourself some questions.
\nKevin<\/b>:\u00a0 Let\u2019s run through them. Can you give us an example?
\nMichael<\/b>:\u00a0 What I do every year is I look at each property and say, \u201cHow has this property performed over the last few years?\u201d I ask myself, \u201cKnowing what I know now, would I buy this particular property again if it came on the market?\u201d I ask myself, \u201cIs this particular property likely to outperform the averages over the next decade?\u201d Then I look to see if there\u2019s anything I could or maybe should do to improve the property maybe to generate a better return on investment for me.
\nIf a property hasn\u2019t performed well over a three or four year period, Kevin, I have to consider is it the right thing to keep, or should I actually be selling it?
\nKevin<\/b>:\u00a0 Yes. Is there sometimes the wrong time to sell it, Michael?
\nMichael<\/b>:\u00a0 That\u2019s what people seem to think at the moment. They say, \u201cOh, look. I don\u2019t want to do it now because I\u2019m not getting the optimum price. I\u2019ll wait for the regional areas to go up. I\u2019ll wait for the mining towns to go up.\u201d
\nBut my feeling is that you shouldn\u2019t do that because the gap between underperforming properties, Kevin, and the better performing properties is only going to widen, and it\u2019s going to be very difficult to ever get into the market if you wait. I suggest you treat your properties like employees.
\nKevin<\/b>:\u00a0 I suppose you have to be pretty ruthless about them, don\u2019t you?
\nMichael<\/b>:\u00a0 Well, you\u2019ve probably heard me say it before. You should treat it like a business. In this case, your properties are really your employees. Think about it. If your employees came late to work, Kevin, if they played on Twitter and Facebook all day, if they took a long lunch, and then they came back and weren\u2019t in the mood to see the customers or the clients, what would you do, Kevin?
\nKevin<\/b>:\u00a0 Well, I\u2019d terminate them, wouldn\u2019t you?
\nMichael<\/b>:\u00a0 Yes. Look, you\u2019d probably do a performance review first, which is what we did. We asked those questions, and then you\u2019d terminate them. You\u2019d replace them. Kevin, sometimes you\u2019d have to pay a redundancy package to move them on so that you could employ harder-working, better employees.
\nIt\u2019s really much the same with your properties. These are your employees in your real estate business, and they have to work for you in the long term. If your properties aren\u2019t giving you what I call wealth-producing rates of return, you\u2019re never going to achieve the financial freedom you want.
\nI hear too many people saying at the moment, \u201cOh, this property is really not costing me much to hold.\u201d The problem is, Kevin, they\u2019re not factoring in their lost opportunity cost. They may be cash flow neutral, it may not be costing them out of their pocket, but they\u2019ve missed out the capital growth that some good properties have had, often $50,000 to $100,000 a year.
\nI think the lesson from all of this, Kevin, is you actually have to take a financial hit sometimes. Remember that redundancy package that you have to pay your employees just to allow you to move forward.
\nKevin<\/b>:\u00a0 Yes. Great advice. Michael Yardney, from Metropole Property Strategists, and his blog, of course, PropertyUpdate.com.au.
\nMichael, thanks for your time.
\nMichael<\/b>:\u00a0 My pleasure, Kevin.<\/p>\n","protected":false},"excerpt":{"rendered":"

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