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Each year brings its own set of wins, challenges, and lessons to learn and 2021 was certainly no exception.
It’s been an extraordinary year hasn’t it?
Looking back to this time last year, we thought we had this Covid “thingy” licked didn’t we, but look what then transpired.
Nobody could have foreseen all that’s happened, including the coronavirus, its economic fallout and the way our lives changed.
But as we head into 2022, I can’t help but reflect on what Australia as a country has accomplished and what I’ve achieved personally, what I’ve overcome, and the lessons I want to carry with me into the New Year.
Here are my top 21.
1. Expect the unexpected
Every year an unexpected X factor comes out of the blue to undo the best laid plans – sometimes on the upside (like the miracle election result in mid-2019) and sometimes on the downside like Covid19 in 2020 or the Delta outbreak in 2021.
Strategic investors try and protect themselves from these surprises by owning the best assets they can, having financial buffers in place to ride through the ups and downs of the property cycle, setting up the right ownership structures, insuring themselves and obtaining holistic advice from their consultants.
But the biggest risk is what no one sees coming, because if no one sees it coming no one is prepared for it and if no one is prepared for it, it’s damage will be amplified when it arrives.
While an X factor seems to come every year, a major Black swan event as some call it, one that “breaks the world”, tends to come every decade.
2. Focus on the long term
The strong performance of both our property markets and our share market showed us to ignore the numerous pessimistic property predictions by the so called “experts” – don’t make 30-year investment decisions based on the last 30 minutes of news.
Strategic investors have a long-term focus and don’t change their plans based on what’s happening “now”.
In fact, they don’t buy investments that are working now – they investment in the type of assets that have always worked.
In other words, they don’t chase the next shiny toy or the next hotspot.
Clearly this was the thinking behind Warren Buffet’s quote “Be fearful when others are greedy and be greedy with others are fearful.”
But while that’s easy to say – it’s not so easy to do.
In my regular blogs on this website and in my podcast and my YouTube videos I called the bottom of our property market in October 2020 and even recommended investing in sound locations during the more challenging times during the pandemic last year.
Anyone who took my advice, and hundreds and hundreds of clients of Metropole did, are now looking pretty smart as in many cases the value of the properties have increased by more than 25%.
3. It’s the media’s job to entertain you – not educate you
Remember… it’s media’s job to get eyeballs on the advertisers’ content, rather than to educate you.
However, when the pandemic first hit, many of us watched the 6 o’clock news, and then the 7 o’clock news to see if there was something different reported and then maybe the 7:30 Report to get another angle on what was going happen to our health, our economy and our property markets.
At the same time my inbox kept dinging with alarmist messages that were uninformed or unbalanced.
Think about it… how many of those expert’s forecasts came true?
But look how many people worried and stressed about the potential outcomes that just didn’t occur.
And unfortunately being overwhelmed with misinformation led many people to live in a state of fear and anxiety and caused some to make disastrous investment errors.
4. Take economic forecasts with a grain of salt
Remember all those forecast that unemployment would reach 10% to 12%? What about those forecasts of property values dropping 20% or more?
They didn’t come to fruition, did they?
Similarly, if you’re reading something frightening in the business section, or hearing it on TV, or learning about it from your neighbour, it’s almost certainly too late to act — because the information is already reflected in market – in either the share price or property prices.
5. Don’t believe the Doomsayers
There will always be someone out there telling you not to invest in property.
Last year, in 2020 at the beginning of the pandemic, the doomsayers found their moment and told us how our property markets would crash – they were wrong of course .
Now they’re out once again telling us that inflation, rising interest rates and mortgage defaults are going to create the property market to crash.
Don’t listen to these Property Pessimistic and Negative Nellies – the so called “experts looking for a headline” who keep telling anyone who would listen to them the real estate Armageddon is ahead of us.
There’s nothing new about these doomsayers who have been peddling their forecasts for a decade or two.
There will always be somebody wanting to stall the aspirations of their fellow Australians who are looking to take their financial futures in their own hands and do something about it.
Don’t let them stop you achieving your financial dreams – the doomsayers are always wrong, at least in the long term.
6. No one really knows what’s going to happen to the property markets
Be careful who’s forecasts you listen to.
There are 25 million property experts in Australia – everyone seems to have an opinion about property, don’t they?
But you know what they say about opinions… they’re like belly buttons; everyone has one but they’re basically useless. So be careful who you listen to.
Of course last year even the respected economists got their predictions wrong when they predicted significant drops on our property market.
And even earlier this year most of the economists did not foresee how strong our property markets would grow.
So as a real estate investor, while it’s important to have mentors make sure you’re listening to somebody who has not only built their own substantial property portfolio, but someone who has kept their wealth through a number of cycles.
There are just too many enthusiastic amateurs out their offering investment advice at present.
7. There is no such thing as the “Australian property market.”
There are multiple markets in Australia, and each state is at a particular stage of its own property cycle and within each state there are multiple submarkets depended upon price point, geography and type of property.
This means that despite all Australians enjoying the same low interest rate environment, the same tax system and the same government, some property market outperformed others significantly in 2021.
But there’s nothing new about this… local factors have always driven property market performance.
So avoid paying attention to commentary that gives broad generalisations about the Australian property market or even the Melbourne, Sydney or Brisbane property markets.
8. Don’t try and time the market
Even though they are armed with all the research available in today’s information age, economists never seem to agree where our property markets are heading and usually get their forecasts wrong.
That’s because market movements are far from an exact science.
It’s more than just fundamentals (which are relatively easy to quantify) that move markets.
One overriding factor the experts have difficulty quantifying is investor sentiment.
So rather than timing your investment purchases (or sales), if you buy the right investment-grade assets, time in the market is much more important than timing the market.
And if you think about it, the top and the bottom of the market are really only one or two days or weeks or months in the cycle.
9. The crowd is usually wrong
“Crowd psychology” influences people’s investment decisions, often to their detriment.
Investors tend to be most optimistic near the peak of the cycle, at a time when they should be the most cautious and they’re the most pessimistic when all the doom and gloom is in the media near the bottom of the cycle, when there is the least downside.
Market sentiment is a key driver of property cycles and one of the reasons why our markets overreact, overshooting the mark during booms and getting too depressed during slumps.
Remember that each property boom sets us up for the next downturn, just as each downturn sets the scene for the next upswing.
10. Property Investment is a game of finance with some houses thrown in the middle
While low interest rates and easy access to loans drove our property markets over much of 2021, the rules of the game are changing with APRA once again interfering to slow down our housing markets.
Moving forward it is likely that APRA will bring in further macroprudential controls.
This means now is a great time to speak with an investment savvy mortgage broker to ensure you have the right finance in place for your existing property loans.
Maybe you should consider locking in a portion of your interest rates at today’s low rates.
I’m not suggesting you try and time the interest-rate cycle, but I always lock in a portion of my loans on fixed interest rates to secure my cash flow.
11. Invest for Capital Growth
Capital growth should be the key driver for your investment decisions, rather than cash flow.
Sure cash flow is important and will keep you in the game, but it’s capital growth that gets you out of the rat race.
So smart investors first build their equity and then they convert it to cash flow.
At Metropole our 40 year analysis of investment returns shows that properties with higher rental yields generally deliver low overall returns for investors.
Our analysis proved that, over the medium to long term, properties with lower rental returns (but stronger capital growth) delivered significantly higher overall return (i.e. capital growth + rental return), while “cash flow properties” with high rental returns delivered lower ones overall.
What this means is those who invest in the more affordable suburbs that deliver a high level of rental return, with the expectation of strong overall returns, achieve exactly the opposite result.
This also highlights the significant opportunity cost in having underperforming assets in your portfolio.
If you can only afford to own 2 or 3 properties, make sure they are all “investment grade” properties that are working hard for you.
Moving forward I can see we were going to have a two tier property market.
In many locations property values have already increased to 20% or more this year but wages growth has been minimal.
This means the average Australian won’t have any more in their paypacket to be able to pay $300,000 more for a property.
If Coronavirus taught us anything, it was the importance of living in the right type of property in the right neighbourhood.
In our new “Covid Normal” world, people will pay a premium for the ability to work, live and play within a 20-minute drive, bike ride or walk from home.
They will look for things such as shopping, business services, education, community facilities, recreational and sporting resources, and some jobs all within 20 minutes reach.
Residents of these neighbourhoods have now come to appreciate the ability to be out and about on the street socialising, supporting local businesses, being involved with local schools, enjoying local parks.
As obtaining finance becomes more difficult moving forward, it will be the people with money that drive property prices.
Not just locals living in the area but people who want to move into these better locations.
You see…there will always be wealthy Australians who will be able to and prepared to pay more to live in these better locations – rich people don’t buy cheap properties.
Currently the high end of our property markets is leading the growth in property values and the the gap will only widen between the more expensive aspirati
12. There will always be reasons not to invest
Every year brings its own set of crises and lots of reasons not to invest.
You can go back as far in history as you like and there won’t be a crisis free year.
Sure some years are worse than others, but there is always bad news and much of it is unexpected.
Where investors get into trouble is that rather than focusing on their long-term goals, they see these crises as once in a generation events that will alter the course of history, when in reality they are just the normal path of history.
13. Property investment is risky in the short-term, but secure in the long term
The last decade reminded many property investors that real estate is not a way to get rich quickly.
It was a long period between the last property cycle peak 2017 and October 2020, when property prices remain flat and in fact fill in many locations
Yet those who stay in the game benefit from the power of compounding growth which builds wealth but takes time.
I found it takes the average property investor around 30 years to become financially independent, but most don’t make it because they can’t stay the distance in part because they don’t have good cash flow management.
Many people get into property investment to improve their cash flow position, but if they don’t have good money habits to start with taking on more debt only compounds the problems.
14. Plan for the worst and look forward to the best
As a property investor, I protect myself from the challenges to our property markets brought about by the pandemic by:-
- Owning the right assets – investment grade properties in desirable locations.
- Having multiple streams of income from a diversified portfolio of residential, commercial and industrial properties as well as shares.
- Owning my assets in the correct structures that protected my interests and were tax efficient.
- Having set up financial cash flow buffers to see me through difficult times.
- Protecting myself and my assets with adequate insurance policies.
Fortunately, I didn’t need to rely on these protections I put in place long before the challenging times, and having them in place helped me sleep much better.
But I’ve learned to protect myself and my investments because I don’t make forecasts – instead I have expectations.
Now there’s a big difference between forecasts and expectations.
I expect there to be another recession in the next decade.
But I don’t know when it will come.
I expect the property market to boom over the next few years and then prices will tumble again. But I don’t know when.
I expect that some investments I will make won’t do well.
But I don’t know which ones they will be.
I expect interest rates will rise. Probably not for a number of years. In fact, I don’t know when.
And I expect another world financial crisis.
But I have no idea when it will come.
Now these are not contradictions or a form of cop out!
As I said…there’s a big difference between an expectation and a forecast.
An expectation is the anticipation of how things are likely to play out in the future based on my perspective of how things worked in the past.
A forecast is putting a time frame to that expectation.
Of course, in an ideal world we would be able to forecast what’s ahead for our property markets with a level of accuracy.
But we can’t, because there are just too many moving parts.
Sure, there are all those statistics that are easy to quantify, but what is hard to identify is exactly when and how millions of strangers will act in response to the prevailing economic and political environment.
Then there will always be those X factors that crop up.
So I plan for the worst, but expect the best.
15. You can’t rely on one stream of income
You’ve probably noticed that successful investors, business owners and entrepreneurs enjoy multiple streams of income.
They strategically go to great lengths to make sure they have money coming in from all directions, or in other words “they don’t have all their eggs in the one basket.”
Unfortunately many Australians learned this lesson the hard way over the last few years, with some losing their jobs, others having their work hours cut back and yet others losing their life savings as many small businesses went broke.
And even though we are through the worst of the economic downturn related to this Covid pandemic, there will always be issues to contend with.
It may not be a pandemic next time, but it could be personal health issues or your inability to work.
Sure, it’s hard enough for some people to figure out how to create a single source of income, little loan multiple streams, but in my mind you have no choice.
Rather than relying on your job as an income source become financially fluent, learn to invest and develop multiple streams of income.
16. There are always risks associated with investing
Don’t be afraid of failing, because the biggest risk is not doing anything to protect your financial future.
Sometimes negative experiences, mistakes and failures can be even better than a success because they teach you something new which another win could never teach you.
However, we are often so driven to get things right that we fail to see the value in the things we get wrong.
Instead we spend our time wishing we had done it differently.
Or not doing anything at all because the fear of making mistakes paralyses us. If you get it wrong, learn from your mistake and make it count by doing it differently next time.
One “failure” can – with time – help you create many successes.
17. Cautious optimism is better for your investment health than perma pessimism.
Life is not fair – get used to it.
But having said that, optimists are more successful in all areas of life than pessimist, or so-called realists (who are just pessimists in disguise). And this includes in the realm of investing.
Now this doesn’t mean that you will necessarily be happy and smiling all day.
But it does mean that you have an ability to look at a situation and while it might be tough, you’re able to see around that corner and see the possibilities…rather than the difficulties.
Those who have high expectations usually rise up to meet them.
18. Time is a limited resource – don’t waste it
We all have 1,440 minutes every day, but some of us squander it, waste it or don’t use it efficiently.
The lockdowns of the last 2 years reminded me how truly valuable time is.
You can lose money and get it back again, if you’re sick you can often get your health back again, but once the time has gone it is gone and is irretrievable.
Start to capitalise on the time you have and get a whole lot more done.
The problem is many people confuse moving with progress.
Just because you’re doing a lot doesn’t mean you’re getting a lot done – I found many people just seem to be running in the same place.
Interestingly working from home has made me much more efficient, I get a lot more done in those 1,440 minutes I have every day.
Another way of looking at time was brought home to me in 2021 and that it that life is short.
On some level most of us know that life is short, but 2021 taught us and solidified the fact that we don’t get a second chance and the importance of truly appreciating what and who we have in our lives whilst living to the fullest.
19. The only certainty is change
We all face changes every day – whether it’s a simple as a change in the weather or something as significant as another wave of the coronavirus pandemic.
Changes are a normal part of life; the problem is most of us don’t like change – we like certainty.
However, learning to expect change has brought me hope during challenging or unexpected life events.
I’ve come to realise that it’s not the circumstances or the changes that dictate how my life will go, but rather how I handle those changes and disruptions.
Rather than worrying about all the changes occurring, I’ve learned the concept of having a useful belief about the changes that are happening to me and seeing what good will come from them.
The more I feel in control of the life my life, the more comfortable I feel and the better I perform in all areas of my life.
20. Worry Better
Fact is, most things you fear will happen never do. They’re just monsters your mind.
And if they do happen, they’re most likely to be not as bad as you expected.
But forget the saying “don’t worry be happy; instead worry the right way – it’s better than not worrying at all.
You see…worry can play important role in your life, and it doesn’t have to be destructive.
We’re all wired to worry.
That’s because worry had an evolutionary benefit, it drew our attention to the fact that there were some things that you should be doing while there were other things that should be avoided.
Those who worried correctly survived and evolved.
But today time spent worrying is time that you could spend identifying opportunities and taking action.
Worrying about the right things can motivate you, but if you find it unproductive, try to take your mind off things by getting engaged in other activities:
I’ve learned the trick of limiting the amount of time I worry.
I was taught the concept of telling myself to put a limit of say 5 minutes or 10 minutes on your “worry time” and then forcing myself to move on by focussing on other tasks or engaging in other activities.
It’s a good trick to learn.
21. This too shall pass
How often do we need to hear the world as we know it is coming to an end, before we realise that the world as we know it has not come to an end.
Now is the time to take action and set yourself for the opportunities that will present themselves in 2022
If you’re wondering what’s ahead for property you are not alone.
You can trust the team at Metropole to provide you with direction, guidance and results.
In “interesting” times like we are currently experiencing you need an advisor who takes a holistic approach to your wealth creation and that’s what you exactly what you get from the multi award winning team at Metropole.
If you’re looking at buying your next home or investment property here’s 4 ways we can help you:
- Strategic property advice. – Allow us to build a Strategic Property Plan for you and your family. Planning is bringing the future into the present so you can do something about it now! This will give you direction, results and more certainty. Click here to learn more
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