5 Keys to Successful Property Investing
It never ceases to amaze me how people with the least knowledge and experience on any given topic can often have the strongest opinions. You know the ones; the football ‘experts’ down the pub, the political experts in the cafeteria, the property experts on the underground.
I’m referring of course to those who make sweeping generalisations about the property market, what’s happening and where it’s going.
There is so much noise in the market. If you followed all the chatter and believed these predictions by the so-called experts, you too would be scared to make a single move.
So what should you do?
- Ignore what everyone else is doing.
Many investors and beginners follow the herd and get too caught up watching and copying what everybody else at least says they are doing. This leads to overreaction and catastrophising of bad news, and, bullishness and cavalier choices in response to good news. Don’t let other people influence your investment choices and strategy unless they are where you want to be.
Instead, focus on your own investment criteria, reasons and goals. Don’t compare your portfolio to others’. What works for them may not work for you. Warren Buffet has a great saying when it comes to ignoring the noise, he said: The key is to “be fearful when others are greedy and greedy when others are fearful”.
- Turn down the noise.
There is simply too much information available at the moment for you to process and consume. While this is great in helping you do your due diligence and make better investment choices, the information overload could also paralyse you.
There will always be bad news about the economy or the world as a whole. But, those that have been able to be financially successful are those that have remembered that property markets (and people) are resilient.
Shane Oliver, one of Australia’s chief economists, put it like this: “Yes, there were lots of rough periods along the way for property, but the impact of compounding at a higher long-term return is huge over long periods of time”.
Plan for the long term. Stay the course. Block out the noise.
- Focus on investments offering sustainable cash flow.
Yes, capital growth is what makes you rich. But you need cash flow to hold on to your investment. It’s cash flow that keeps the lights on, pays the mortgage, insurance and even the plumber! As a property owner, you have responsibilities. Meeting those responsibilities requires cash.
Investing for capital growth in properties that don’t cash flow at all, or, negatively cash flow is very, very risky.
- Realise that your aim is to make money, not to be right.
Which would you rather be, rich or right? Many investors miss this. Many investors have lost money doggedly following some belief that they were sure would be right, even when the numbers and the facts suggested they wrong. If you can’t make money on paper, then it definitely won’t make money in the real world.
Investing is about making money. It’s important not to get hung up on extreme views about where markets are going, and instead to focus on your clearly defined strategy.
- Invest for the long term.
You’ve heard it before, and I’m going to say it all over again: property should be treated as a long-term investment.
There’s really no better way to maximise your profit and avoid losses. When you hold your investment over the long term, you’re able to ride the peaks and troughs of the markets. When you adopt short-termism, you’re exposing yourself to potential losses due to high entry and exit costs.