Here’s the most important advice you may ever receive about real estate investment: it’s the future that matters, not the present or the recent past.
That may sound simplistic but the reality is that most Australians invest according to the present while being influenced by the past. They don’t see the future because they lack the skills and their mindset is wrong.
When it comes to buying an investment property, the only thing that matters is the future. But that’s not how most investors behave. Most investors get into the market when media tells them there’s a boom under way. By the time media reports rising prices in a market, the rise has been under way for 12 months or more and it’s too late to buy well – much of the price growth that investors are seeking has already happened.
Investors miss many of the best opportunities because they are put off by a poor track record.
Here’s the hardest task I face when communicating with real estate consumers: it’s convincing them that a location which happens to have a poor track record, or a bad image, really does have a bright future.
People would rather buy in an area with a big growth record, but past its peak, than in an area with a poor recent record but a great future.
Partly it’s the herd mentality (do what the masses are doing because it must be right) and partly it’s the need to see tangible evidence that growth is occurring before committing hard dollars. Sadly, by the time that evidence emerges, it’s too late to buy at the best prices.
Decisions by property investors should always be dictated by the future, not the past or the present.
One of the key distinguishing behaviours of successful investors – in any field, including real estate – is that they buy counter-cyclically. Legendary US investor Warren Buffett, one of the wealthiest people on the planet, always preaches buying when others are selling and selling when others are buying. This simple philosophy has been the cornerstone of his success.