We would all do certain things differently if we had our time over again, wouldn’t we? But that doesn’t mean we should live our lives with regret.
What I mean is, because we can’t go back in time to change decisions that we’ve made, there really is little point in dwelling on them.
Instead I prefer to learn from my mistakes and move forward smarter than I was before. And in the world of property investing, there is so much to learn and unfortunately mistakes can be costly.
Last week I shared eight things I wish I knew when I first started investing. In this second part of my piece, I’ll outline another eight lessons to help prevent you making the same errors I made along my journey.
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Understanding the power of compounding and leverage
One of the big secrets to successful property investment is the power of compounding and leverage. This means the earlier you start investing and the longer you hold your properties, the more time your money has to grow.
With a long-term horizon, you don’t have to be overly concerned about the ups and downs of the market.
The fact is a large part of your asset base when you retire will not be money you have invested or your equity from the mortgage you’ve paid, but it will have occurred because of capital growth. And a large part of that capital growth will come in the latter years of your property ownership. That’s how compounding works.
Investing is not a get rich quick scheme
Sure, Sydney’s property market has made heaps of money for investors over the past six years. But for the seven years before that the market was actually flat. Having invested for over 40 years now, one of the many lessons I’ve learned is property investment is not a ‘get rich quick’ scheme — it’s a get rich slow one!
As Warren Buffet said: “Someone is sitting in the shade today because someone planted a tree a long time ago.”
Ignore white noise
You’re probably aware how the media loves a real estate story — particularly those that ‘predict’ a property bust.
The truth is a significant price drop in well located ‘investment-grade’ capital city properties is unlikely.
So learn to ignore the white noise and keep your eyes on your long-term goals while not taking notice of short-term market vagaries.
Both capital growth and cash flow are important
In my mind residential real estate is a high-growth, relatively low yield investment vehicle and the key to creating wealth is to grow a substantial asset base of ‘investment grade’ properties.
But I learned an important lesson during “the recession we had to have” of the early 1990’s. I realised while capital growth gets you out of the rat race, you need solid cash flow to keep you in the game.
It’s much the same today in the current difficult lending climate. That’s why investors should protect themselves by having a cash flow buffer to see them through the inevitable rainy days.
Location is non-negotiable
Remember that 80% of your property’s performance will be due to its location and about 20% because of the property itself– so never compromise on location.
Rather than look for the next hotspot, find a location that has a long history of strong capital growth and will continue to outperform the averages because of the demographics in the area.
In general, these are the more affluent, inner and middle-ring suburbs of our capital cities where residents will have higher disposable incomes and will be able to afford to and be prepared to pay a premium to live there.
Don’t throw your money away
To become rich you will need to learn to spend less than you earn, save the difference and eventually invest it. Don’t underestimate the importance of this seemingly simple message.
The problem is too many people throw away their money buying things they don’t need with money they don’t have to impress people they don’t like.
Like Robert Kiyosaki said: “If you don’t know how to care for money, money will stay away from you.”
Gratitude is important
Wealth means different things to different people. But I’ve learned over the years true wealth has nothing to do with how many properties or how much money you have.
True wealth is what you’re left with when they take all your money and properties away.
Give back to the community and charity
Apart from being grateful for what you have, you also need to give back to the community and charity. One of the most satisfying parts of my life is supporting our community and various charities with my wife Pam.
Our successful property investments and business has made us extraordinary lucky so I believe it’s our responsibility to help others who are less financially fortunate.
The lesson from all of this is property investment is a long journey. There will be market ups and downs and lessons learned, along the way.
But with the right education, and the right support, you can create and live a wealthy and grateful life.
And we can’t ask for any more than that, can we?