The difference between successful investors and those who struggle is planning – and a willingness to pay for research and professional advice.
The central theme of the webinar I hosted with guest presenter Josh Atherton, Managing Director of PPI Advice, was the folly of diving into property investment without clear goals and strategies in place.
Sadly, this is how most Australians approach property investment – and why most investors have a bad outcome.
Atherton introduced the concept of the Iceberg Theory, which suggests that most of what people need to know and do is hidden beneath the surface.
“Often we look at an iceberg and be tricked into thinking that what we see is all we need to know,” he said. “In reality, 90% of the iceberg is hidden from view.”
“It’s the same with property investing. While it’s easy to see what’s on the surface, the majority of what we have to do is beneath the surface. It’s not the active stuff like inspecting the property and speaking to financiers. There’s so much more you need to learn and need to do.”
He said 90% of Australians undertake property investment on their own, without paying for quality research or expert advice. The process for most investors is:-
1. See their bank or broker to get loan pre-approval.
2. Do some suburb research (maybe).
3. Find a property and buy it.
4. Wait and hope it grows in value.
Atherton said the most successful people in any field seek the advice of professionals to harness the improved results that other people can deliver.
“Property investing is no different. Having access to a property listing portal means absolutely nothing. In fact, it will often be the silliest thing you can do– just jumping on realestate.com.au and looking for properties to buy.”
He said that, given that three-quarters of investors own just one property, the jump from one to two properties is “extremely important to get right”.
“One property isn’t going to make us all that wealthy,” he said. “You need multiple properties spread across various areas of Australia to provide a platform to leverage off.”
“Even seasoned investors need to take stock and sometimes to re-strategise. The most successful investors never stop growing.
“Going it alone is not the best strategy. If you can’t afford advice, you can’t afford to invest.”
“Property is exciting and Australians love property, but when you turn it into investment it changes everything. You need to take the emotion out of it.”
So what do successful investors do differently? Atherton said there is one standout trait which distinguishes successful investors from the 75% who have ordinary or poor results – planning.
“Every time you see someone who is successful at something, you can almost guarantee that they have planned – and planned well. “The most successful investors spend 70% of their time planning and strategizing.
“Yes, it’s probably the most tedious part of the process – but it’s not as tedious as trying to fix the mistakes you make by not planning properly.”
Atherton says investors succeed by following this process …
1) They set their investing goals.
2) They have a healthy relationship with debt.
3) They use forecasting to reduce risk.
4) They know the importance of asset protection.5) They create, understand and invest to their risk profile.
6) They manage their money like professionals.
7) They manipulate investing lifecycles to their advantage.
8) They rely on professionals.
In terms of setting goals, Atherton said: “If you don’t know where you’ll end up, you’re going to be on a loss journey. Successful people understand that goals and strategies are not optional. You have to do them.”
He referred to a Harvard University study of MBA students and their subsequent results in their careers: it found that only 3% of the survey participants had written down their goals, but those 3% earned 97% of the combined income of the total group.
He said successful investors know that debt is a common element to growing wealth. “They don’t let debt stress them out,” he said. “And they get advice on debt from people who don’t benefit from getting them into debt.”
Atherton said it’s important for investors to understand their attitude to risk in investment and to align their goals and investment strategies with their risk profile.
Successful investors actively manage their money. “Many successful investors are very analytical, very spreadsheet-driven. They create and use systems to manage their money. These are good qualities for investors to have.
“The best investors are proactive, not reactive. All markets move, in different ways and at different times. You need to learn to pre-empt this and move before the market or with it, but never after it.
“If you are always in just one market, such as your local suburb, you will be exposed at some point. There are 15,000 individual suburbs in Australia and they all behave differently.”
Click here to watch the Webinar on ‘Property Investing ISN’T for Dummies: What are the mistakes most investors are making?’