In this show, we preach to the converted about the benefits of investing in property, but every once in a while doubt may creep into your mind about whether you are doing the right thing so today we discuss with Michael Yardney the common excuses that stop investors. That might help re-focus you.
Kevin: I hear from time to time people who want to get into property investing and they want to do it for a long time, and I guess they’re continually coming up with excuses as to why they can’t do it. One of the things I’ve found is that the longer you delay on a decision, you’re really starting to then look for reasons not to make a positive decision.
I’m curious about what some of the common excuses are that stop investors from taking that first step or even growing their portfolio. I want to ask that question of Michael Yardney from Metropole Property Strategists.
Good day, Michael.
Michael: Hi, Kevin.
Kevin: Nice to be talking to you again. You heard what I said there about people looking for reasons not to do things. What have you found are some of the reasons or excuses they use that hold them back?
Michael: Just before I go through those, may I explain that I think they’re basically based on fear – fear of the unknown, sometimes fear of debt, sometimes fear of success – but it doesn’t manifest itself as fear. Most people try to be logical so they come out with reasons, as you say, or excuses.
One of the common ones we’re currently seeing is “I don’t have enough money to buy a property.” Now, the answer is it could be true because currently, APRA is making it more difficult, so even though you can afford to buy a property, sometimes the banks don’t allow you the serviceability – they say you can’t.
But interestingly, don’t use that as an excuse straight off. Make sure you have the right budgets. Make sure you see an investment-savvy finance strategist who explores all of the options in the market, and don’t be scared of taking on lender’s mortgage insurance because as long as you own a good property – one that increases in value – taking those extra steps to get in because as you said at the beginning, Kevin, if you don’t, the market keeps running away and you’ll never save enough to catch up with the market.
Kevin: Sometimes that excuse or that reason could be because we’re looking for something that we probably couldn’t afford anyway. Some people try to outreach their own capabilities, Michael.
Michael: Very much so, not only with investments but also with homes. A lot of people want their first home to be fantastic like the one they’ve just left from their parents but they’ve forgotten it took their parents 40 years to get to that level, Kevin You’re right.
Kevin: What’s another one of the common excuses or reasons?
Michael: People are sometimes concerned that the property market is unreliable, that it’s not safe. Again, they’re right. We know that most investors fail because they bought the wrong property and they have not bought an investment-grade property.
I think it’s important to remember that some properties are much better investments than others. In my mind, it’s probably in this current market only 1% or 2% of properties that I’d call investment grade, so it’s a valid excuse unless you do your homework and research.
Kevin: It’s not the market, is it? It’s actually the decision you make that makes it unreliable. The market’s not unreliable in itself unless you make the wrong decision.
Michael: Good point, Kevin, because the risk doesn’t lie in the market; in general, it lies in the investor, in their head space, in the decisions they have made, in the finance they have taken on, not having the buffers to see them through. You can’t separate risk from the investor who’s doing it.
Kevin: Do you think, too, we look for the quick fix, for it to happen too quickly?
Michael: Yes, I think people are impatient. We’ve become that way. That’s just our society. If they can’t seem to get there quickly, if they don’t make it quickly, they think “Oh, it’s going to take too long; I just can’t be bothered.” But it always reminds me of Warren Buffet’s beautiful saying, “Wealth is the transfer of money from the impatient to the patient.”
Kevin: You think we’re too impatient. Is that a generational thing? Is that something that you’re seeing come through in the younger generations?
Michael: I believe it is, because of unrealistic expectations, sometimes fed by the media and often fed by all those e-mails we get in our inbox every day telling stories of rags to riches and instant wealth. But they also talk about the Easter Bunny and Father Christmas, and they’re not true either when you get those e-mails.
Kevin: There is a lot of that, isn’t there? “I bought 100 properties in 18 months,” and when you really dig deep and you find out where they are, they’re not really going to grow much in value and they’re probably geared right to the hilt anyway. It’s not a good strategy.
Michael: No, it’s not. Therefore, it’s best to start real estate investment with realistic expectations, knowing that it’s going to take on average 15 to 20 years to build a big enough asset base to replace your personal existing income.
Kevin: Those types of people who talk about building those enormous portfolios, they rely very much on the people who just don’t want to do their homework. In other words, they’re looking for that quick fix, that quick answer because the majority of people don’t know what they don’t know about buying property and having tenants or investing in property.
Michael: That’s another reason that some people use, an excuse they use, not to go forward. “I don’t know about it.” It’s the opposite for some people too who have overconfidence because they live in a house, they’ve rented an apartment, and they think they know it all.
But the answer is for both of those groups, there are answers out there by doing the correct research, by finding a good mentor, by finding a savvy finance broker, and by getting an independent property strategist who’s going to give you realistic advice. If you don’t know it, get a good team around you. Probably, investment is a team sport.
Kevin: Wrapping all of this up, Michael, do you think it’s fair to say that property investment is sometimes delayed or even bypassed as a way to building wealth because people have a lack of awareness around how it really works?
Michael: We’re not taught how to do this. You’re not born knowing how to do money, and despite 24 million people in the population, fewer than 2 million people own an investment property and a vast majority of those own one or two.
We don’t get the education from our parents, we definitely don’t get it from our teachers, so you’re right, Kevin; the world doesn’t help the average person become a property investor. You have to become the pilot of your destiny, take it in your own hands, learn, research, seek mentors, seek good advisors, and then, most importantly, take action. Do something. Don’t use the excuses.
Kevin: That second to last point you made about seek good advisors is very important in light of what we talked about earlier about people just rushing in and thinking that wealth can be built overnight. It just doesn’t happen that way.
Michael: No, it doesn’t, Kevin. The landscape is littered with people who have tried it and failed.
Kevin: Indeed. Great talking to you, Michael Yardney. Thanks for your time.
Michael: My pleasure, Kevin.