By Gerald Tay (Guest Contributor)
On a daily basis, I probably get 5 to10 emails telling me investing in property is my route to “financial freedom” or “it’s a better bet than investing in stocks.” And for some, property might be. But for many, it can be the worst investment you make.
There are far too many companies shouting about the benefits of property investment, when really what they mean is “Please invest in property so WE can get rich.” The reality is, many people I have met who want you to invest in property don’t care two hoots if you make money or not, as long as they profit from your investment!
Are you an “armchair investor”?
I must admit, I find “armchair investors” very perplexing.
I strongly believe that the best person to look after my money and my financial future is the person I see in the mirror, not a third party with a sales agenda.
I cannot understand the concept of sitting back and letting someone else take all the responsibility for my money, my investment decisions, and my financial future – no matter how trustworthy that person might seem.
I actually want to roll up my sleeves and get my hands dirty. I want to strive to understand my investments from every angle. I want to take responsibility for how my money is spent. I want to be on the “factory floor” dealing with the everyday running of the business so that I can grow my skills and knowledge.
If I invest my time and diligence in my property business, then there is hopefully far less chance of it going wrong than just taking someone else’s word for it.
Armchair investors sitting back in their armchairs calling themselves “investors” are really “armchair speculators on a third party’s ability to make the right buying decisions for them”.
Property is not a case of “one size fits all”. If you don’t want to roll your sleeves up and get your hands dirty, then maybe you shouldn’t get involved at all.
If you think of yourself as an “armchair investor” and not get in the thick of the action, then there’s a strong possibility your investment will go off the rails.
“Armchair investors” are similar to war generals overseeing the critical juncture of a battle while hiding in their well-secured bunkers.
Whom does the typical “Armchair Investor” buy from?
These are three types of salespeople such investors commonly fall prey to:
1. Developers – Selling local & overseas new launches or off-the-plan properties that comes with exotic names, addresses and themes to investors who hope to flip at a higher price when completed or via a sub-sale.
2. Overseas Property Packaged Deals – Claim to pay investors a “Guaranteed Rental” over a period of time and provide property management support.
3. Seminar “Gurus” – claim the “armchair investor” concept is an easy way for anyone to become an instant property millionaire, then sell their students a bunch of properties and profit themselves. “Attend my powerful 3-day ‘millionaire secrets’ seminar and make ME rich.”
If any “guru” promises to give you the wealth of your dreams with minimal effort, it’s safe to assume that you’re being lied to. The seminar industry rakes in millions every year from lazy people looking for the next quick fix, and they’ll keep doing it as long as you keep falling for it.
Yes, I can understand that if you are cash rich but time poor you might like a bit of help and support. That is understandable. However, to absolve yourself of all responsibility and “just sign papers”, which I have heard someone say recently, is a complete anathema to me personally.
It is always better for you to learn how to invest in property (or other investments) yourself, instead of relying on someone else to do it for you. Many people use “lack of time” as a reason why they don’t get into the gritty details of managing a property themselves. This is just an excuse. We can achieve anything we decide to make a priority.
You need to determine your underlying Investment Principles
When it comes to Property Investing, have you ever actually sat down and analysed your principal aims?
And have you then matched them against the properties you already own — or those you may now be considering?
Basically, you’ll find most people purchase property for one (or more) of three reasons.
1. To receive a solid cash flow;
2. To provide a profitable return;
3. As a hedge against inflation.
You may feel you’d like to achieve all of these. But generally, one or two will stand out as being more important for you.
As you’re probably aware, the truly rich tend to generate their capacity for wealth through their business activities. But then, they turn to Property to preserve and grow that wealth.
And in the same way, your underlying principles should also be to (Priority Order):
• Protect your original Equity; and then
• Obtain a worthwhile, on-going return on it.
With that in mind, you would need to remove anything of a highly-speculative nature from among the properties you pursue. Because, what you’re effectively seeking is solid growth — without unnecessary risk. And that brings us to …
Your Investment Profile
More often than not, you can determine your Profile based upon your personality type and your past experience.
Type #1: The Risk Taker
Some people love telling stories about how they “gambled a lot” — where they would have either made a fortune, or gone broke. These investors can be quite entertaining to listen to, but rather dangerous to imitate.
Type #2: The ‘NATO’ Investor
No Action, Talk Only. These people certainly know their stuff — because they attend lots of seminars, read many books and are probably a regular on several forums. But they never have enough conviction to actually invest for themselves.
Type #3: The ‘Bull-Market’ Investor
These investors only make money when markets are on a bull-run, and ONLY during a bull-run. Their investment strategy is never planned on or built for a bear market. They believe just any property or investment can make money because bulls are too sacred to be killed.
This is typical of many investors today.
Type #4: The Shrewd Conservatives and Hands-On Investor
These are the mildly-aggressive investors, who only increase the size of the portfolio when they have enough funds in reserve. They do their homework before buying, and don’t put the existing properties at risk.
These investors are likely the ones who willingly to roll up their sleeves and get their hands dirty. They are highly involved in every aspect from the buying, to the letting, managing tenants, having a strong support team and overseeing the entire property management themselves.
Bottom Line: As you can appreciate, it is the Type #4 Investor who is most likely to succeed. And that’s the one you should strive to emulate, going forward from year 2014 onwards.
Yes, you can build wealth with real estate. You just need to educate yourself, work hard, start conservatively, think long-term, and most importantly, be prepared for lean years. This is not a quick or easy path to riches.
Gallop steadily ahead in your financial wealth for the Horse year and beyond!
By guest contributor Gerald Tay, CEO of CREI Academy Group, who exposes widely-held property investment myths that have proven highly ineffective in creating wealth, and prevent a comfortable retirement for the ordinary investor.