3 PROPERTY INVESTOR MISTAKES
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Transcript of: 3 Property Investor Mistakes
Hey, guys! Today I’m going to talk about the mistakes property investors make.
Firstly, this is not financial advice. Secondly, I think you can apply these concepts with anything that has to do with investing. And thirdly, I think property is a great investment. Over my 15 years’ experience in finance, I’ve learnt a lot by observing firsthand the mistakes people make.
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1. Undefined and Unstrategic Goal
First major mistake is that they have no idea of what they want.
In buying an investment property, it’s crucial to first ask yourself “why am I buying this property?”
Buying something just because you think the price is going to go up in the future, and you’re going to have a pile of money at the end of it, is not a smart strategy. If your strategy was to end up with a pile of money at the end of it, the strategy doesn’t work for everyone. Inflation will eat your savings away.
Your actual goal should be something that’s realistic because you’re more likely to achieve it if it’s realistic. This is where people go wrong straightaway – they don’t have a goal.
A good goal would be to think long term and make sure that you have enough income for your retirement.
Think of how much income you need in retirement to have a good life.
For a property to be a good investment and get you an income upon retirement, you probably need to pay down a fair amount of debt.
Every property investor’s actual challenge is answering the questions, “what are your goals?” and “how should I think strategically to achieve my goals?”, because then it’ll allow you to figure out how you’re going to strategize and what this property is going to do for you in the future.
So, if you’re buying a property and thinking that you’re going to have a pile of cash at the end of it, that’s not going to work. Piles of cash doesn’t work. Piles of cash is a lie. The reality is, this only works for a small minority of property investors.
So, before making a major decision of buying a property, ask yourself, “how do I derive an income for myself and for my family in retirement?”
Think long-term, think for your whole life.
2. Undiversified Funds
Mistake number two that property investors make is they want to go all in on property.
This is a common mistake. People come and consult with me because they want to borrow as they’ve got plans to acquire a couple of million dollars property, then seem to have their heart set on acquiring that amount of money.
I’m going to be blunt here, if you’re just an average person, there’s no way you can do it.
Because an average income means that you’re simply not going to be able to borrow enough money.
There’s a legislation in place that basically says if you’re earning an average income of $85,000, there’s no way you’re going to be able to borrow a couple of million dollars. If you want to look it up it’s called Debt-To-Income ratio.
Unfortunately, people believe the lies they tell themselves, and want to go chase that lie.
Sadly, many people want to go all in and want to put all their superannuation and use that money to go buy property. I’m sorry but that just doesn’t feel right to me. 100% of your wealth in one asset class seems foolish.
At present, the property market’s gone up by 30%. The problem is if the property market craters like Japan in 1989 which has been recovering from then to basically today, it’s going to punish your wealth – do you have 33 years to get your wealth back?
I’m not saying that Japan’s going to happen here. I just want to expose risks of not diversifying.
There are good stories passed down from generation to generation, and they are good not because they are fun, but because they have meaning to them, and they stand the test of time.
And the whole thing with going all in a hundred percent into property is, you’ve got a tale that says, “don’t put all your eggs in one basket”. That story has been around for hundreds of years for good reason, which is if you put all your eggs into one basket, you might get wiped out.
I know there’s going to be a lot of naysayers out there, but history also disagrees with them.
They may be looking at the property market going up for the last 30 years, and that’s great. But has it gone up all the time non-stop?
So, be a fan of diversification, that is a built-in protection.
As a property investor, you must understand the limitations that are ahead of you. It will allow you to stand back and understand that for you to achieve these larger goals, you need to be smart about the types of investments and the strategies you choose.
3. Wrong Mindset
Mistake number 3 I see property investors make is the mindset.
Many people nowadays want and think it’s possible to make a million dollars overnight. People who have done that are more likely entrepreneurs and they’ve probably actually spend a lifetime trying to make it happen.
But one thing is for sure – you can’t just buy a property and sit on it and think you’re going to get rich. The idea of doing nothing and becoming wealthy is stupid to me.
The first step in improving your mindset is to comprehend the concept of compound.
Consistently working and focusing on property investment will do you good over a long period of time. Your time spent, your learning and your experiences will eventually compound your knowledge. Eventually, your investments will start outperforming everyone else.
So, get away from the idea of passive investing, which is basically do nothing and expecting something in return.
In real life, people who get rich in property are those that are constantly doing it, because their experience has compounded. They can find the value in the opportunities that are always there and exploit those opportunities to make money out of them.
Whether you’re a millennial or you’re over 40 who’s starting out in property investment, set your mindset on important things like putting your house in order first. Don’t let your personal finances become a pile of trash by spending willy-nilly and having a lot of credit cards and car loans that will punish your capacity to save cash.
If there’s one sure way to not getting rich, it’s to do all those things and give the interest to whoever’s lending you the money.
It’s time to be very responsible with your money. Success is sequential.
The tidier you are in your living expenses means you can reduce your debt, and the more investment you can acquire. The more cash you’ve got means the more opportunities you can access.
That’s the 3 mistakes I have observed over the years.
You might think I’m negative on property – I’m not. I think property is a magnificent asset class. I just think we live in a time where people are looking at the positives and not necessarily weighing up the negatives.
I’d love to hear your thoughts where you agree or disagree with me.
If you want to discuss property investing, you can tee up a time with me – I’m always happy to chat.
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