Property - How to be Profitable & Sustainable
Updated: Feb 18, 2020
Trying to predict the future is a guessing game fraught with issues, but the importance of thinking about the future and evolving property market conditions, and planning accordingly, cannot be underestimated.
Each of us has our own unique financial circumstances to consider but the equation is universal: Assuming that we work until 65 years old, save enough to buy a property for investment, and with a major financial crisis occurring once every 10-15 years (maybe only), we have roughly 4-6 downturns/cycles to take advantage of.
If you're in your mid-twenties, you have a more cycles to play to your advantage, while those of us in our 40s and older, will face significant challenges to buy into once-a-lifetime opportunities.
Whether young or older, I see two common major mistakes make by property buyers.
1. The young thinks they have time on their side so they can "afford to fail". The older buyers think because their time is "running out", rush to buy into the market to avoid losing out.
2. The young wrongly assumes they have "significant life-span" to see property values grow. The older buyers wrongly assume all things always remain equal as before.
As you can read, the word I used is "assumption". Assumption is deadly for any investments. It can easily wipe away our critical retirement funds, critical funds for our children's education or critical funds meant to help us make our retirement years comfortable and enjoyable. Unless you have a billion-dollars stash away, don't bother to read on.
Since I bought my first property in 2003, I've always make money in every of my real estate investments and my investment returns are substantially higher than most others - net 20% p.a and more.
Not because I'm "The Warren Buffet of Property" (not even close), but because I'm always cautiously optimistic. As you can see, I don't have to own "40 properties" (be extremely wary of those who tell you they do) to fund my retirement lifestyle. QUALITY always matter more than QUANTITY.
Four steps to how to be "Profitable and Sustainable" in your property investments:
1. Don’t assume tomorrow what is concrete today
I'm talking about the promise of future capital gains. It's extremely alluring for many investors in the property market, stock market, bitcoin and many other speculative investment buys.
No one wants to lose money obviously. They want to see their investment grow in value and buyers choose see the property market as "Confirmed, Guarantee and Chop" to make money. Why not - It happened to many buyers over the last 45 years of Singapore's economic growth. They see friends make money. They see their parents make money. They read on media how others make money. So they assume they too can make money.
When you toss a coin three times and get heads, many people believe the fourth time will be a head.
They choose to see only the good side of a coin and ignore the other bad side. So they rush to queue at property showrooms - afraid tomorrow's new government property cooling measures will put their buy on hold indefinetly and thus miss out on "great opportunities". They buy regardless with a lack of knowledge (or care not) of rental market conditions, evolving market conditions, history of the market, an abundant supply of properties and a mentality of "I'm smarter investor than others because I bought a property first before the latest property measure kicked in"
I've been only a seller and observer since 2013 until today. And I'm curious to know the future fate of property buyers who have rushed to buy into the market since then.
2. Sustainable investments only. Don't be rich today but broke tomorrow.
A company called "Enron" used to make money. MySpace was the FaceBook of yesterday. Hyflux was cash-rich from a booming oil industry in the mid-2000s. Ezra, another local company made a lot of money in the once-booming oil industry and was once a market darling. Second Chance was once a booming local retail giant. Popular bookstore went into the property market as a developer hoping to join the bandwagon and lost big. Well-known travel agency Asia-Euro Holidays closed down suddenly in 2015, leaving only an A4-sized paper notice on the front door of its Chinatown Point office.
Multi- Millionaires went broke. Million-dollar commissioned property agents became taxi-drivers. And.... you get the point.
You may get lucky in a booming market, but not always. Your investments should last beyond a boom and into the gloom regardless. It comes from positive cash flow from rental income and having tremendous knowledge what you are buying into. It comes from not following the crowd.
Be the shepherd, not the sheep.
3. Don’t be on autopilot
“Auto Pilot” property management is idiocrasy.
Simply hire a property manager or ask the salesman to recommend one if you lack connections. Sit back and relax and the money will flow in automatically. How nice.
It’s not smart and it’s not true. It is complete idiocrasy if you believe your property manager has your full interest at heart. They don’t and they never will.
Property expenses are easily inflated without you knowing. And for all you know living in your ivory tower 10,000 miles away, your property is tenanted by a wanted criminal and your property manager never know or care.
Property managers are bull-sh*t. They are a smokescreen to cover the complexities of investing in a complete foreign market. It’s the lazy way of investment. It’s not investing. It’s punting your property will see capital growth to cover likely rental losses and over-run property expenses.
It’s like paying someone hoping to run your start-up company profitably while you sit at home watching Netflix.
That said, until you get to the scale of Disney or Novotel, you certainly aren’t getting a good deal out of foreign or local property managers.
4. Avoid Penny Wide, Pound Foolish
Everyone loves a bargain, but the impulse can hurt investors. People use a mental process called “anchoring” to determine whether an offer is good value.
If you are offered something at a cost of $20, that becomes your measuring stick for all other offers, often without investigating whether $20 was actually a good price.
This means that when the same item is offered for $17 it appears to be good value. Sales people often exploit this fact to make people think they are getting a bargain. This is the biggest investment failure people make: they make an investment decision simply because they think they are getting it for a lower price.
Property developers have "reduced" quantum prices - by increasing per-square-foot dollars and reducing actual livable space. They have done this to mitigate harsh property cooling measures in hopes of buyers buying into the fallacy. "For less than $1 million today, you can own your own private condo".
Warren Buffett: “Price Is What You Pay, Value Is What You Get”
Most investors have likely heard the old adage. It's a safe bet, however, that far fewer have thought through its deeper implications.
How can you avoid these mistakes
Be wary of other people’s advice. People who are giving you advice are the chicken at the ham and eggs breakfast and you’re the pig.
The first kind of specific thing I would like people to have in their heads is that your mind is always tricking you into thinking the world is a more certain and noble place than it is.
It is not.
It’s doing various things to make you comfortable with the fact that it isn’t certain and that leads to misjudgments.
Be very wary of people who come at you with lots of confidence and predictions about what is going to happen whether those people are investment advisors or property “experts” or doctors.
If you’re struggling with how to proceed and want more, check out my Private Property Wealth Coaching Package.
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To your Wealth & Health,
Founder, Property Wealth Mentor & Fitness Coach
A Bowl of Rice