16 things I wish I knew when I started investing: Part 2

Expert Advice with Michael Yardney. 28/10/2017

But that doesn't mean that we should live our lives with regret. What I mean is that, because we can't go back in time to change decisions that we've made, there really is little point in dwelling on them, is there?

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.

In this second part of my story on things I wish I'd known when I started investing, I'll outline another eight lessons to help prevent you making the same errors I made along my journey.

9.    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. And with a long-term horizon, you don't have to be overly concerned about the ups and downs of the market.

Fact is, a large part of your asset base when you retire will not be money have invested or your equity from the mortgage that you paid down, but 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.

10.    It's 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 7 years before that the market was actually flat.

Having invested for over 40 years now, one of the many lessons I've learned is that 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.”

11.    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 that a significant price falls in well located “investment-grade” capital cities 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.

12.    Both capital growth and cash flow are important

In my mind residential real estate is high-growth, relatively low yield investment vehicle and the key to wealth creation 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 that while capital growth gets you out of the rat race, you need solid cash flow to keeps 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.

13.    Location is non-negotiable

Remember that 80 per cent of your property's performance will be due to its location and about 20 per cent 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 one that 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.

14.    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 that 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 says: “If you don’t know how to care for money, money will stay away from you.”

15.    Gratitude is important

Wealth means different things to different people. But I’ve learned over the years that 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.

16.    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.

“If you're lucky enough to do well, it's your responsibility to send the elevator back down,” the famous actor Kevin Spacey says.

The lesson from all of this is that 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?

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To read more articles by Michael Yardney, click here

Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.