More myths go under the microscope + Investors pay for unused infrastructure

More myths go under the microscope + Investors pay for unused infrastructure

 

Property success stories are everywhere but we have to warn that there are many stories we don’t hear about because there are many people who fail.  So what makes a successful property investor?  That’s what we discuss with Andrew Mirams who has seen it all.

Regular guest Michael Yardney shoots holes in the theory that property investing is all about cash flow. He says rather we should be looking at it as a high growth low yield investment strategy. He explains more today.

Dr Andrew Wilson defends the stats we all rely on and while they seem to differ, there are some ways to look at them that will reveal the true story. Andrew tells us more.

George Raptis, a seasoned investor himself and a property strategist from Sydney, talks to us about one of the biggest mistakes he sees investors make. At the same time, we discuss the difference between buyers agents and strategists.

Time heals all wounds – or so they say. Jan Somers says that it does take time but rather than using time to cover mistakes, why not look at time being an important element in your strategy.

Investing where you live because you are comfortable with that location, you know the facilities and what is going on, sounds all fine but as Jane Slack-Smith will point out there are some shortcomings that may not be that evident.

Also this week we encourage you to go back to the basics, more important information on depreciation and we tell you about an area in Australia where investors are paying for infrastructure they are not using.

 

Transcripts:

George Raptis

Kevin:  This is a fascinating subject. I love talking about it because it’s something that a lot of property investors totally miss out on, and that is the importance and the value of bringing people who have already experienced a lot of the things you’re going to experience along the way, and that’s building a team, because so many people think that you can learn a lot more by doing everything yourself. That’s a great way to lose some money.

George Raptis joins me from Metropole Properties in Sydney.

Good day, George.

George:  Hi, Kevin. How are you going?

Kevin:  Good, mate. How often do you see that, George, where someone thinks, “I’ll do it myself; I’m going to learn a lot as I get along the way”?

George:  I see it a lot, unfortunately. Sometimes people think they can do it all themselves, but I’m always a big advocate of surrounding yourself with a team. For example, if you look at myself personally, albeit I’ve been in properties for many, many years – I don’t manage my own properties, I don’t do the maintenance on them, I don’t do my own tax, that sort of thing.

I guess, for me, I learned a very valuable lesson, and that was somebody said to me, “George, if you think it’s expensive hiring a professional, wait until you hire an amateur.”

Kevin:  There is another saying, too, that a good friend of both of ours uses all the time, and that is that you should surround yourself with people who are better at doing things than you are, and if, in fact, you’re the smartest person on your team, then you have a real big problem.

George:  Exactly right. You need to surround yourself with a team of professionals, Kevin, definitely.

Kevin:  Let’s look at property, then. On your team, who would you have? There are the no-brainers, like you need an accountant who is familiar with property.

George:  Yes, you definitely need a good tax-savvy accountant. You need a smart lawyer, someone who can help you with asset protection, a proficient mortgage broker, someone who can sit down with you and go through finance strategies, not just get you pre-approved for pre-approval’s sake, and obviously, an independent property investment strategist, not someone who sells property or who has a vested interest in helping the project marketers and the developers of the world, but someone who is independent and truly on your side.

Kevin:  Yes. Let’s have a look at a few of the issues that you raise there because they’re quite real. That one that you talked about getting someone who is a property strategist as opposed to just a buyer’s agent who may, in fact, even be representing the properties that they’re suggesting you should buy.

George:  Correct. What’s happening is, unfortunately, if someone is representing somebody else and trying to push somebody’s else’s agenda with regard to offloading off-the-plan type properties or house and land packages – that sort of thing – I always say to potential clients, “How can somebody like that give you untarnished or independent advice when they have a big carrot dangling at the end of the day?”

You really need someone who doesn’t have a vested interest, somebody who is going to give you truly independent and unbiased advice. Like we say, maybe sometimes you also need an unreasonable friend, someone who is going to tell not what you want to hear, but something that is actual matter of fact.

Kevin:  Yes, to tell you the truth, as it is. Also, when you’re looking at a solicitor, I’ve always found it’s good to make sure you have a solicitor who understands or at least has some affiliation with solicitors in other states because property laws do vary state to state.

George:  Yes, they do. Unfortunately, we can’t use a Sydney lawyer to do conveyancing, for example, for purchasing a property in Brisbane, and that sort of thing. But they need to be au fait with what’s happening up there. Also, a lot of these solicitors, like you said, have colleagues and affiliates in various other states.

Kevin:  Yes. I know as an agent, I used to roll my eyes every time if we had someone from another state who said, “I have my local solicitor who will handle it for me.” I’d know straightaway that we’re in for trouble because contracts are so different state to state.

George:  They are. A property-savvy conveyancer is also very important. I’ve seen over the years where people have missed out on potentially really good deals as far as purchasing property is concerned because the solicitor they were using would be litigating in court all day, and their file would be underneath a pile of other files and they’ll get around to it when they can. Conveyancing wasn’t really top of mind as far as their priorities were concerned.

A good firm that’s very property-conveyancing-savvy is really important to have on your team.

Kevin:  George, just to wrap it up, I guess the big lesson here is certainly learn from having other people around you but don’t think that you can learn on the job. That’s the quickest way to fail and actually lose money.

George:  That’s right. Exactly right, Kevin.

Kevin:  George Raptis from Metropole Properties in Sydney.

George, thanks for your time. I’ll let you get back to you and your team.

George:  Thank you, Kevin. Have a good day.

 

Jane Slack-Smith

Kevin:  There’s always debate about how much knowledge you need to have about a property if it’s going to become a good investment and whether you really need to personally know the area intimately. I guess with the Internet nowadays, so many things can be done at arm’s length, but is that such a good idea if you’re a property investor?

I’m going to talk to Jane Slack-Smith now from YourPropertySuccess.com.au.

Hi, Jane.

Jane:  Hi, Kevin.

Kevin:  Nice to be talking to you again. Jane, your view on this? Do you really have to know the area?

Jane:  I think there are two sides to this story. I speak to people all the time who say they’re going to invest where they live because they know the area so well, and when I ask them a few quick questions about how well they know the area, like what’s the median price, what’s the percentage of renters and therefore, what is the vacancy rate, and just general conversational questions that I’d ask any investor, they can’t answer those questions.

If I flip that to your question, which is do you need to know an area well, I think you need to know it well but as you pointed out, you can get a lot of that information off the Internet.

Kevin:  Yes, I think there are two things here. You need to know if you’re going to live there and live there with your family, but maybe you need to know it differently if you’re looking it as an investment. There are certain other things that you need to touch on if it’s an investment property.

Jane:  Absolutely. As an investment, what you need to know about an area is completely different to if you’re a homeowner, as you pointed out. It’s not about lifestyle choices that you might make for yourself; it’s about is that property going to make you money as an investor? The key criteria changes.

We want to know who is the typical type of person for the area, which means we need to understand the demographics. We understand what’s the typical type of property so that we can actually find a property that suits the majority of people who want to rent in that area. As an investor, that’s what you’re after usually, the long-term investment.

However, I do think that you do have to visit the area before you purchase.

Kevin:  Let’s talk about that. When you do visit the area, give us some tips on how you should be looking at it, because obviously, you’re going to visit it. You won’t be living there, so therefore how do we assess it’s suitability as an investment?

Jane:  You can pick up 80% to 90% of an area’s information from the Internet. Things that I like to understand are is there a good area of town or a bad area of town? You can pick that up through real estate agents’ descriptions of “It’s in the golden triangle” or “It’s on the right side of Parramatta Road” for instance.

But when we’re talking about actually visiting feet on ground, it’s about walking around the area at different times of the night and day, calling into the local shops, having a chat to the pharmacist or the newsagent, and just getting a feel for what that area is like – looking at how well-kept the streets are, the type of cars that are in the garages, getting a feel for are kids running around happily in the park or is everything locked up at 6:00 and the locks are on the doors?

Kevin:  That’s such good advice. I think, too, walking around the area, do it at different times of the day. Do it, not at sun-up, but certainly in the morning, do it at night, just to get a feel for what does happen in the area. What do people do in the area? How do they live there?

Jane:  Absolutely. Even simple things – like I know real estate agents who know that there might be specific traffic noise associated with a nearby industrial site or even airport noise will coordinate the open for inspections at the time of days when that noise isn’t there. Then all of a sudden, someone is shocked by the fact that they bought behind a quarry, for instance. Walking around and getting a feel at different times of day I think is really important.

Kevin:  Indeed. Any other tips you’d like to give us in terms of understanding the area? What are the key things that you look for when you’re assessing an area?

Jane:  I’m a long-term buy-and-hold investor, so I’m looking for proof that the area has been popular in the past. I’m looking at past capital growth and the fact that there has been some interest in the area. But I’m also looking at anticipation of the growth in the future because I want my investment to grow in value.

I want an economy that is stimulated. I want a multi-economy, so I want to have different interest groups or industries in that area. I’m also looking at population growth and I’m looking at income growth. I want an area that’s moving ahead, which means that in the future, people can afford more for the property that I have.

Kevin:  Jane Slack-Smith, always great talking to you. Jane, of course, from YourPropertySuccess.com.au.

Jane, all the best and thanks for your time.

Jane:  Thanks, Kevin.

 

Michael Yardney

Kevin:  As we continue to dispel some of our myths, I’m going to catch up with Michael Yardney right now.

Hi, Michael.

Michael:  Hi, Kevin.

Kevin:  Michael, I wanted to talk to you about another myth that I’ve heard, and that is that cash flow is the most important thing when it comes to investing. What would be your reaction to that?

Michael:  Kevin, the crux of my successful property investment strategy is that residential real estate is actually a high growth but relatively low yield investment. Residential real estate doesn’t give a lot of cash flow.

There are four ways you can make money through property, and I think most investors get it wrong how they do it.

Kevin:  Could you tell us how they’re getting it wrong?

Michael:  The first way is capital growth. Your property appreciates in value over time. The second way you make money out of a property is the rental return. That’s the cash flow that you’re asking me about. The third way is accelerated or forced growth. This is where you manufacture some capital growth through doing renovations or doing a development. The fourth way is tax benefits, things like negative gearing or depreciation.

Out of all of these, in my mind, capital growth is the most important. I know not everyone agrees with my strategy. In fact, when it comes to property investment, you’ll hear the two conflicting stories bandied around.

Kevin:  We’ve talked about your five-stranded approach and we’ve featured it in the show before, but let’s go back over a couple of those points that you’ve mentioned there, Michael.

Michael:  The reason behind it is because I believe that the first stage of building property investment wealth is by building your asset base. There is no doubt that you have to watch your cash flow. The reason most people don’t become financially independent is because they spend more than they earn, so you have to get cash flow management right.

But having said that, residential real estate doesn’t give you cash flow. I see people who come to me and say, “Michael, I’d like to buy a property investment and I want it to pay my school fees,” “Michael, I’d like to buy some real estate and it’ll pay for my holiday.” It doesn’t work that way. You have to let it grow.

That’s why the five-stranded approach is to find properties that outperform the averages with regard to capital growth. Once you have an asset base, Kevin, then you lower your loan-to-value ratios and then you turn it into cash flow.

Kevin:  Michael, are there any times when you actually would look for a cash flow positive property?

Michael:  Sure, Kevin. Once you build a substantial asset base and you transition to being into the cash flow stage where you’re starting to live off your properties, then often I’ve had commercial real estate but not residential real estate looking for positive cash flow.

The problem is you can never turn a cash flow positive property into a high growth property because of its geographic location, because of where it is. But you can actually achieve both high returns – cash flow – as well as capital growth by buying a high growth property and then adding value, doing some renovations, doing something that increases its cash flow. This will bring you high rent, extra depreciation, and that converts your high growth, relatively low cash flow property into a strong cash flow positive property.

Kevin:  That is part of your strategy – isn’t it? – to look for those sorts of properties where you can add some value and get some extra income.

Michael:  Definitely because I don’t want to downplay the importance of cash flow. That’s what gets investors stuck, when there are those periods like we get every cycle where there is no capital growth for a while or, in fact, property values drop a little bit or during those high interest rate periods. So you have to manage your cash flow, but you do that by budgeting and by having a financial buffer, having something set aside in a line of credit or an offset account to see you through those lean times.

But if you buy a property that gives you more rent return, higher cash flow, in general, you have to forego either security because you bought a property that maybe isn’t as secure because of its location or you’re going to forego capital growth. In property investment, there are three things – there is cash flow, there is growth, and there is security. You can’t have all three.

Kevin:  It’s interesting listening to you, Michael, and reflecting back on a lot of the myths that we’ve been dispelling, a lot of them come about because people don’t have a strategy or they don’t have a plan. Here we’ve looked at one in isolation – that’s cash flow – and you’ve demonstrated to us that that’s not right because it’s not part of the overall strategy.

Michael:  Correct, Kevin. Or they have a flawed strategy. When you look at the statistics, we know that less than 8% of investors buy more than three properties. In other words, 92% actually never get past their second property. That never gets them the wealth that they require. In fact, 50% of people who get into property sell up in the first five years. Most property investors fail because they have the wrong strategy, a flawed strategy.

Kevin:  I know that you have a series of seminars coming up shortly. No doubt, this will be part of that discussion process.

Michael:  I’ve been investing for over 40 years, which means I’ve lived through the difficult times we’re going through, now at the beginning of 2016, so we’re going to be discussing how investors can avoid the minefields, follow somebody who knows where to walk and not tread on the minefields to see them through the next couple of difficult years. I’m getting some experts to join me at those seminars around Australia.

Kevin:  Both of them are regular guests on our show. That is Ken Raiss and Dr. Andrew Wilson.

Michael:  That’s correct.

Kevin:  One of the reasons people should be coming along to your seminar is that things have definitely changed. 2016 is going to bring with it a whole lot of new challenges we’ve never even seen before.

Michael:  Every year is a little bit different, but this mirrors the beginning of 2008 when a lot of people were concerned about what became the Global Financial Crisis when issues on the other side of the world affected us. The same is happening again. Much the same happened in 2003. I remember the early ’90s and I remember the middle ’80s when it happened.

Therefore, I am going to use the experience of having invested – and some would suggest reasonably successfully – through those cycles to share the lessons I’ve learned. Boy, did I learn the hard way. I wish I knew what I know now then, but in fact, so have all the other main speakers.

There is nothing to sell at these seminars. We have no properties to sell, so we can actually tell it as it is. There are some difficult times, some bad news, but there is also some good news in there as well because at these times, there are always opportunities, Kevin.

Kevin:  Yes, opportunities that others will miss. Are these emerging markets or are they existing markets that maybe have been overlooked?

Michael:  No, I think we have to been even more careful with correct property selection because certain markets are going to suffer more during those times, and so I’d be cautious of those.

I guess it goes back to something we discussed only a couple of minutes ago about not waiting for capital growth to occur but maybe manufacturing your own capital growth and most importantly in these more challenging times, protecting your assets by having the right finance, having the right assets, having the right structures because if history repeats itself – and it most likely will – there will be some casualties along the way, Kevin.

Kevin:  Since we’re talking about cash flow, what are the other considerations that property investors have to bear in mind to be successful?

Michael:  I believe there are a number of building blocks of wealth. The first is to start off with a successful mindset. It’s a bit like if somebody suddenly wins the lottery and if they’ve not got the right head space, they end up losing it. We hear that all the time.

You have to learn the right skills and knowledge from people who have lived through these more difficult times. Then you have to set yourself a strategy. Understand what your strategy is. You also have to get risk management under control in these more challenging times – you always should, anyway – which is owning properties in the right structures, having the right finance, owning the rights to the properties.

We’ve already talked about cash flow. That is important, but the main aim for property investors is to build their asset base, build their equity, because this is capitalistic society we live in. We’re building our capital. It’s not a cash flow-istic society.

Kevin:  I want to mention about Michael’s seminar that is coming up in March and April. It’s going to be in Sydney, Brisbane, Adelaide, Melbourne, and Perth. All the dates and all of the details at PropertyMarketUpdate.com.au.

Michael, thanks for your time.

Michael:  My pleasure, Kevin.

 

Andrew Mirams

Kevin:  Joining me this time to have a look at another one of the common myths in property investment, Andrew Mirams from Intuitive Finance.

Andrew, welcome to the show.

Andrew:  Good day, Kevin. Thank you.

Kevin:  The one I want to tackle with you is that you can actually get rich quickly by investing in property. What are your thoughts about that, mate?

Andrew:  That’s a great question. If it was, why wouldn’t we all be doing it, Kevin? It seems so simple, doesn’t it?

I think one of the things that we often get presented with, as financiers, is people coming and wanting to flip properties. It’s “I’ve heard someone do it, and you make good money and it has to be an easy way to make money in property.”

Kevin:  Let’s firstly qualify what flipping property is.

Andrew:  Buy a property or buy a quick reno or improvement, turning it back over in the short-term. Flipping is all about not a long-term hold; it’s a short-term strategy where you can turn it over quickly and make a good profit from it. I’ll preface this by saying there are people who can do this, but the greater majority in our experience have been failures, and some have been quite dismal failures.

Kevin:  Just on that point, of the ones that you’ve seen succeed, what are some of the qualities that they bring to the table that others don’t?

Andrew:  There are probably five things that are really important in flipping properties, and when we go through the five things, you’ll see probably where people are both successful and fail.

The first one of those that we find is a lack of knowledge. By that, I mean that people haven’t done their research on an area or a suburb, they haven’t done their research on the type of property, and more importantly, what will sell and how long it might take to sell at the end.

People jump in thinking “I saw a house next door,” or “I’ve done this,” or “I’ve done that,” and not doing their knowledge tests and having some skills behind them is probably the first step. Again, people who do research that really well and know the areas that they should target have done fantastically, have gotten good results.

The second point is a lack of skills. The skills that are probably the two most important are the financial in terms of actually doing the correct analysis, and then more so, probably, the technical and being able to get in and do a lot of the work yourself.

People who can do a lot of trades and people like that who can do work themselves, it can be profitable, but if you’re outsourcing and think you can turn it over quickly, all your trades are going to want their margins on a property, and doing it then erodes your profit or potential there.

The next one is a real lack of patience, Kevin. Probably the next two work together: a lack of patience and a lack of time. The first one is a lack of patience. “Is it done yet? How quickly can this thing turn around so we can get it back on the market?” A lack of time tends to be probably the effort that they can put into the property. Obviously, if you can do work yourself, you don’t have to pay someone their wages to do it for you.

Kevin:  I would imagine that’s a fairly big one, that ability to roll your sleeves up and do some work yourself, because that adds straight to the bottom line.

Andrew:  Yes, absolutely. The time and the patience are all working together because at first, it sounds like a great idea. At this time of the year, people are on holidays and they think, “We’ll get in and we’ll do that.” All of a sudden, things take longer and there is something else to do – “It’s a nice day; I’ll go to the beach.” – and all of a sudden, it doesn’t get done. That’s where we get impatient or then it becomes a burden. That’s the real lack of time. Every week, “I have to go to this place and do this again.” It can become a real burden.

Those who are good at it, love it. They can’t wait to get there and they’re really clever at both the finishes they can put on and also the work that they can do, like you said, rolling up their sleeves and doing a lot of it themselves.

Kevin:  Andrew, also on that point, I find, too, that the really successful ones are the ones who treat it like a business not like a hobby, not like something I’m just going to do on the weekends, so I’ll fit it in and I’ll have to make all that other stuff fit around it. For them, it’s a job really, isn’t it?

Andrew:  Absolutely. I think what you said, getting rich quick, that’s the thing. The ones who do it as a business not as a hobby are the ones who are successful, and the people who want to get rich quick because it’s so easy to do are the ones who tend to run out of these first four things.

Certainly, the last point that I’d like to make is the major one as far as what see. It’s the lack of money that people have. They think it’s a relatively cheap exercise – get in and do it because everyone is doing it. But there are three things with that lack of money. There is the buy cost. People don’t often look at what it costs to buy a property, the transaction costs, the stamp duty, and things like that.

The second point is while they’re renovating, they’re not getting a rental or anything else like that so it’s your hold cost. You’ve still got interest, rates, and other things. You have to meet insurance while you’re holding it. Then there’s the sale cost. It’s getting agents in and how you advertise it, and things like that.

Those three things can really cruel a project. If you’ve been able to do all those first four steps potentially yourself but you haven’t done your research on what the monetary items are, you can end up doing it for nothing. We’ve seen people do it for nothing and/or lose money from trying to do it quickly and turning it over.

Kevin:  There you go. It might be possible, but it’s not easy. Our guest this time, Andrew Mirams from Intuitive Finance.

Andrew, thanks for your time.

Andrew:  My pleasure, Kevin. Thank you.

 

Andrew Wilson

Kevin:  Another myth that we’re either going to dispel or prove today: that property statistics never lie. I’m going to talk to a man who deals with statistics all the time, Dr. Andrew Wilson, Senior Economist at the Domain Group.

Andrew, good morning.

Andrew:  Good morning, Kevin.

Kevin:  Do they ever lie?

Andrew:  It depends on the models, of course. It’s a problematic exercise – modeling the housing market – for various reasons. At the granular level, every buyer and seller are different, every property is different in time and space, and it’s a question of putting enough observations together to get a feel for what the underlying activity levels are in a particular market.

That can mean, firstly, that you need a larger number of actual sales to get an accurate insight into the market and you also need a timeframe, as well, within a period that’s not looking too far back.

There are a number of factors – the mix of property sales, the time period involved, and the actual volume of sales that are available. We don’t want to be modeling… It’s easy enough to know what happened two or three years ago because we have a robust set of statistics. We want to know what’s happening as close to now as possible. That’s where we do get some flexibility in outcome.

I think it’s important for statistics in terms of house price modeling to use correlating measures of housing market activity. So not just house prices – the various methodologies – but also other factors such as auction clearance rates, auction volumes, and of course, the housing lending data that comes out from the ABS.

I think that helps us put a richer picture together to give us an understanding of what is actually happening now in the housing market. But the very nature of the fact that we only get 6% of all properties sold in a given year in most capital cities means that it’s always only ever going to be a snapshot.

It does remain a difficult issue, but nonetheless, one that if you use a variety of approaches, can give you some clear insight into what’s happening in the marketplace, which, of course, is very important if you’re thinking of buying and selling.

Kevin:  That’s an interesting statistic you just hit us with there – that 6% of properties turn over. When you look at it in that sense, it really is a small snapshot, isn’t it?

Andrew:  Absolutely. Then you think about all of the variety within that 6% and all the different agendas for buyers and sellers. Some sellers are desperate to sell; others might just be feeling the market out.

Some buyers are very keen on a particular property because it might be close to a relative or its size might suit them, and they’re prepared to pay a lot more than perhaps a buyer who doesn’t have that same motivation.

Some buyers have a higher financial capacity and are prepared to pay more, and other sellers might have more motivation or less motivation depending on their financial circumstances.

You need to put all these different variables together to try to understand what the underlying energy or the underlying fact or the underlying nature of a particular housing market is. That’s balanced against not having to look too far back because you want to know your information is more appropriate the closer it is to now rather than looking back a year when you have a lot of sales volume.

That’s the other point, too. Sales data does trickle through. Official sales data can take up to nine months to come through to those who model the data. Again, there is the lag in actually collecting the data.

There are a number of issues there. As I said, the key is to use different correlating methods of measurement, so that can put it all together and give you a clearer sense of what’s happening in housing markets.

Kevin:  Well said, as always. Dr. Andrew Wilson, Senior Economist at the Domain Group.

Andrew, thank you so much for your time. Great talking to you.

Andrew:  Thank you so much, Kevin.

 

Jan Somers

Kevin:  I want to talk about another myth, and that is that it doesn’t matter when you buy a property, just to hold it and time takes care of any mistakes you might make. To have a look at this one, I’m going to talk to Jan Somers from Somersoft.com.au. That’s software that will help you improve your property investment outcomes.

Jan, thank you for your time.

Jan:  My pleasure, Kevin.

Kevin:  How do you feel about that statement, “It doesn’t matter when you buy; just hold onto it.”

Jan:  My philosophy is time, not timing. That’s probably the best way of describing it.

Kevin:  Tell me a little bit more about what you mean by that.

Jan:  You have to have a length of time for property, I believe, to make it work, an absolute minimum of 7 years and preferably 10 or 20. It’s the length of time that you hold a property that is most important, rather than the exact timing of when you buy, because trying to pick the time is like trying to pick when the Spanish bus is going to come past. You don’t know; it’s not the same as a Swiss train. Timing is very iffy, very buzzy, and there’s usually not a good outcome if you’re relying on making a lot of money in a quick time. It just doesn’t work.

Kevin:  Generally, people who try to pick the cycles in the market will chase things like hot spots and so on, which are very risky.

Jan:  It’s a completely different end of the market to what I call investing. It really is the speculating end of the market if you’re relying on timing to make money. It becomes almost in the category of shares, where you’re taking a punt and a bet on the market, whereas if you’re buying for the long-term, you’re not taking a bet on the market; you’re taking a bet on the time.

I was reading an article the other day on Marcus Licinius Crassus, who in 55 B.C., made a lot of money by buying property and holding onto it.

Kevin:  In fact, a lot of the very astute investors I’ve met over the years… I hate to categorize people, but I think those in the Italian community are great at this. They’ll have property, probably even the first property they ever owned.

Jan:  It’s almost a European tradition that goes back hundreds of years to buy and hold property.

Kevin:  That buy and hold strategy, as you’ve just identified, is nothing new. I think those who get into flipping and things like that, there are lots of pitfalls. You can over-capitalize, you can get your timing wrong, and end up losing lots of money.

Jan:  It does and those people who rely on the timing and trying to pick the market are generally trying to make a short, quick dollar. My experience is, particularly for me, it doesn’t work. When I’ve looked at others, it doesn’t work, either. It’s very hit and miss.

Kevin:  Your strategy very much is to buy and hold, Jan?

Jan:  Has always been buy and hold, except for the one time we did try to make, I can’t say a quick dollar. It was back in the late ’80s when we did a renovation and expected to spend $10,000 and make $20,000 or $30,000. Much to our disgust, it was worth less when we’d finished than when we’d started, but holding it for another few years soon ironed out those little bumps in the market, and we were fortunate that the time corrected any mistakes that we’d made.

Kevin:  Yes, sometimes the quick buck looks really good and looks very profitable at the outset, but then by the time that you look at all of your on-costs and the time taken, there is not a lot of money left in some of these renovations.

Jan:  Looks good, sounds good, and if it sounds too good to be true, it is too good to be true.

Kevin:  It normally is. Very good advice. Jan, great talking to you. Thank you once again. A reminder, once again, about that great software company, Somersoft.com.au. It’ll certainly help you turn your portfolio into a more profitable one.

Jan Somers, thank you so much for your time.

Jan:  Thanks, Kevin. My pleasure.

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Kevin Turner
kevin@realestatetalk.com.au
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