OPINION: There's a view in certain circles that property investors are some sort of privileged overclass who takes advantage of the vulnerable and dispossessed while riding an upward wave of unfettered capital growth. The reality couldn’t be more different.
Most residential property investors are mums and dads who are simply making their way in life while experiencing the same struggles and concerns as the rest of us – and if you drill down into the story of those who’ve been investing for a while, you’ll usually find that most of them have lost money along the way. In most cases, those losses aren’t due to any fundamental flaw in the market but rather human error. Many homeowners think they know better than the market and make basic mistakes they could have avoided.
I certainly fall into this group. Last week I wrote about why patience is the number one trait of all successful property investors and used some examples from the early days of my own property investment career to demonstrate why the lack of patience is such an obstacle to that success. That got me thinking about some of the other mistakes that I’ve made over my 35 year property investment history and what I would do differently if I knew then what I know now.
Here are the five biggest mistakes I’ve made and what I’d do if I had my time over again:
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1. I didn't trust the market
I’ve now lived through four property cycles and have a much greater insight into how the market works. Generally speaking, New Zealand's property market doubles in value roughly every ten years. And it doesn’t crash - it simply flattens when the market is off the boil. I’ve learnt to trust in this cycle and would place even more stock in it if I had my time again.
2. I reduced my portfolio
In my article last week, I wrote about how I first got started in property and how I sold my entire property portfolio just a few years after buying it. It was an unnecessary, pointless act which I can only blame on the impetuousness of youth and it set me back decades. Getting into the property market is the hardest part of becoming an investor and we need to do everything – everything – that we can to protect that portfolio once we’ve established it. Unless you’re doing so to transfer your equity into another property of equal or greater value, never sell.
3. I left it too late
When I talk to budding investors and potential first home buyers it’s not uncommon to hear them giving their reasons for waiting before they buy. This always makes me sad because it’s the ultimate folly. Even a two or three year delay can add as much as 40 percent to the cost of property when the market is going up – and the absolute stupidity of Government housing policy can quickly change the market in ways which make it harder to buy. The time to buy is always now. Don’t wait.
4. I didn't use a property manager
There’s a big difference between being a property investor and a landlord. One invests in property, the other looks after the day-to-day management of property – and being good at one doesn’t necessarily make you good at the other. Many of my early frustrations with property came from my attempts to manage my own properties – something I was patently and wholly unsuited to. For the past 15 years I’ve used professional property managers to look after my real estate investments and my tenants, and I wish I’d learnt this lesson much earlier.
5. I didn't walk away when I should have
One of the great truisms of property investment is this: “The deal of a lifetime comes along every week." It means that we shouldn’t stress too much about losing what we think is a once-in-a-lifetime opportunity because another opportunity will come round soon enough. I’ve certainly found this to be true over the past three-and-a-bit decades and have learnt to recognise that that there’s a point beyond which we should let go and move on. Work hard to get a deal over the line by all means – but learn when to walk away.
- Ashley Church is a property commentator for OneRoof.co.nz. Email him at [email protected]
