The Tale of Two Investors

Hot advice for new and not so new property investors
I will never forget visiting New York in the month of January and being completely overwhelmed with all the post Christmas shopping specials. Shirts, ties, jackets and shoes that were barely affordable in the lead up to Christmas were now on offer at half their original price. On the flight back to South Africa I got to thinking that perhaps it would be a good idea for my family to move our Christmas celebrations to the 25th of January each year in order to maximize on the gift giving at a fraction of the pre-Christmas prices! I was recently called to a meeting with a major South African bank to consult on an exist mechanism for an overexposed property developer.

In digging into the history of the residential development scheme in question, I found myself having flashbacks to my January shopping experience in New York.
On the launch of the property scheme the property market was hot and property investors dived in and purchased units at staggering prices. This was certainly a Christmas season experience for the property developer / seller. At the time of my meeting with the bank, however, the property market had cooled and the same units that had sold for staggering prices in hot conditions were now struggling to sell for half their original price. The above is a perfect illustration of the tale of two investors. Investor A is the investor that in slow market conditions sits on his or her hands and does absolutely nothing. But when the market hits a frenzy with media and agent hype he/she can no longer resist and starts buying properties at sky high prices. With rental returns nowhere near enough to cover bond repayments (typical in hot market conditions) and the advent of slowing market conditions, investor A is soon in a world of trouble and looking to offload his/her properties at a fraction of what he/she paid for them. Enter Investor B. Investor B is the investor who in slow market conditions comes out to play. He/she buys properties at bargain prices and rents them out at returns that come close to or even cover his/her bond repayments. When the market starts its upward run he/she keeps calm and looks to offload at sky high prices to investor A who is now back in the fray and terrified to miss the boat. The scary fact is that Investor A describes the majority of property investors and Investor B describes only a well informed handful. So how do you make sure that you join the ranks of the well informed?

Knowledge is power so arm yourself with as much knowledge as possible before you take the plunge. Read and research every property book, article, website, and newsletter that you can get your hands on to learn and grow. The next step is to take action as experience is the greatest teacher of all. If the current economic climate and property market favours buyers then it is an indication that times are tough for a number of property owners that may be willing to let their properties go for well under their intrinsic value.

The biggest difference between investor A and investor B is something called common sense. Common sense involves buying properties that are well located in established or up and coming areas, it involves building fat into your numbers so that you can weather the cash flow challenges presented by vacancies and rising interest rates, it involves using reliable professionals and contractors to carry out improvements on the property if required, it involves doing a thorough investigation of tenants instead of signing up the first tenant who walks in the door, and most importantly it involves starting small and dreaming big. The mantra of any wanna be successful property investor is “it is better to own one great property than 10 bad ones”.

Given that common sense is often the product of experience and hindsight I have written books and created an investment website that will give you a head start and hopefully smooth many of the potential bumps along the way. Good luck with your journey!

Jason Lee