THE ‘RULES’ OF REAL ESTATE INVESTING

Break them at your great peril!

by Neil Jenman

Reading Time: 5 mins apx

This morning something unusual happened to me. I saw a property on-line that, in my opinion might be a great investment.

I texted some of my phone contacts.

Here is what I wrote: 

“This is something that is seriously worth consideration – now. If someone could do the research for me and organise everything, I’d just sign and buy it. Provided the numbers worked.

Why?

Because of the subdivision potential. The aim is to get this home for nothing.

How?

Build two villas on the half of the block that gets subdivided. Sell them both (the villas) and that should give you enough money to cover the cost of building the two villas PLUS buying the original block (with the house on it).

Get it?

Now, I am not saying that the figures will work out on this property, but I am saying it’s worth investigating AND that it’s the sort of property that makes a smart investment.”

I also texted a couple who, in the last 10 years, have bought several homes from a property guru – and have lost a decade of their investing lives. A tragedy that happens to thousands of people who fall for slick charlatans.

“THIS IS THE SORT OF PROPERTY YOU SHOULD CONSIDER. If you’d stayed away from the gurus (charlatans) and invested in these sorts of properties you’d likely have a couple of million dollars in equity now. However, of course, you can’t wind back the clock. But, if you could do it in the past, it follows, logically, that you may be able to do it in the future. Therefore, maybe that sort of equity awaits you. Sure, it’s a bit more “work” than buying from gurus but at least you’re not lining their pockets with hundreds of thousands of dollars in profits for them before you get started.”

The property that attracted my attention was in one of my favourite places, Tasmania. It was on 1550 square metres of land and priced at just $399,000.

It felt right.

SAFETY FIRST

But still, one of the first questions I ask about anything is: What is the worst that can happen?

I call that my seven-word safety test.

Not much can go wrong buying a property such as this.

This question has saved me many times. When others are rushing into something and madly waving at me to join them, it has caused me to “do the numbers” and “think the worst”.

And most times it has made me say no thanks.

To me, nothing is more important with investing – and indeed in life – than safety. And sure, maybe I have missed out on some “great deals” over the years.

But it’s not what I have missed that’s most important, it’s what I have done. What I have achieved. And while I will never be on any Rich List, I can truthfully say that, right now, in 2021, I have never been happier.

I made it. By “making it”, I mean I made it to the point where I am “okay financially”.

Now, of course, what’s “okay” to me is likely different to what’s “okay” for you.

Although, I would suggest that if you are a reasonable person who places happiness above all else, maybe you’ll agree with my “safety first” approach. To have worked for several decades and to own your own home with some reasonable investments and assets would probably be “okay” for you too. Yes, to reach the great goal of having “no money worries”.

It is often said that most of us spend most of our lives worrying about two things: Our weight and our money. But whoever said “You can never be too rich or too thin” was wrong. You don’t need to be anorexic, and you don’t need to be mega-rich. As the saying goes: “The best things in life are free”.

And yes, but the best things are not things. Think on that one.

For centuries there have been some great thinkers and some wise philosophers. One of my favourite thinkers was Aristotle. If I interpret the wisdom of Aristotle into one sentence it would be this: “Everyone wants to be happy but only the good can be happy and only the virtuous can be good.”

Therefore, if you follow the virtues, you should be okay – no matter what your definition of okay happens to be.

The four cardinal virtues, of course, are: Justice, Temperance, Fortitude and Prudence.

If something is going wrong in your life, look at these virtues and you’ll most likely find the reason for your problems.

But rather than wait for things to go wrong, why not try to do right in the first place?

Better to spend time getting something right than to live a long time with the consequences of getting it wrong.

Some of the wisest people are affectionately known as the “old wives” – and they gave us such gems as “Measure twice, cut once.”

Or “An ounce of prevention is worth a pound of cure.”

Think before rushing in.

THE PROPERTY INVESTING STAMPEDE

Right now, thousands of people are ignoring prudence in the property market. It makes me near sick with worry to see what they are doing.

I have always believed that life is about “rules”. And no, I am not talking about legal rules – although they are important – I am talking about basic life rules.

Like kindness, appreciation, hard work, great service and wanting to do good, even it means being labelled a “do gooder”.

But the secret is simple: Do good for yourself and then you can do good for others.

Even something as simple as always remembering the magic words our parents (or has it been so long since the courtesy rule was fashionable that maybe it was our grandparents) taught us – “Please” and “Thank you”.

Breaking the rules of life does not lead to a happy life.

I have been involved in real estate my entire working life and I am seeing people today taking risks and, yes, breaking rules that I would never break.

Just because you break the rules and get away with it, does not mean you should break the rules. Imagine running across a busy motorway blindfolded; you make it to the other side without being struck by a vehicle. Does that make it right? Of course not.

So, please don’t say it’s okay to break the rules.

Right now, here are ten major real estate rules that are being brazenly broken by thousands of frenzied buyers. All of them involve the virtue of prudence (safety).

I truly believe that such rule breaking is going to end in massive amounts of tears for tens of thousands of people.

So, please check yourself and see how you rate on these…

10 RULES OF REAL ESTATE INVESTING.

VIEWING

RULE: Always personally inspect property before you buy it.

ADVICE

RULE: Always get independent legal advice before you buy property.

FINANCE

RULE: Always get your finance approved before you sign an unconditional contract.

STRUCTURE

RULE: Always get a building inspection report before you buy.

QUALITY

RULE: Only buy property you would be prepared to live in yourself. Don’t buy dumps.

INDUSTRY

RULE: Always buy in areas that have more than one major industry. Google “Dysart property crash” for an example of how investors get hurt.

HERD

RULE: Remember the investing maxim: “The herd is always wrong”. In the long term.

TIMING

RULE: Buy in gloom time. Sell in boom time. And ignore the sales line about “time in” the market. If you buy in a frenzied boom, you could be in for a very long time.

PATIENCE

RULE: Smart investing is ultimately the transference of wealth from the impatient to the patient. And please remember, “The day you plant the seed is not the day you eat the fruit.”

LEARN

RULE: The more you learn, the more you earn. There are many great investing books (not those written by people who want to sell you something). Two great books are The Zurich Axioms by Max Gunther and Richer, Wiser, Happier by William Green.

YOUR TURN WILL COME

In many parts of Australia, we are now witnessing the biggest property boom in the nation’s history.

Yes, it’s disappointing and deflating to feel you have missed out.  As the writer Gore Vidal, famously said, “Every time a friend succeeds, something inside me dies.” If you are patient; if you are prudent, believe it, your turn will come.

But if you abandon prudence, if you break the safety rules of real estate, you will place yourself in grave danger or not just missing out but of losing out.

If you rush in and buy a third-rate property during a mad real estate boom, you won’t be able to buy that top rate investment opportunity when it does come around. Like the one I texted to my friends this morning.

Safety first. Wealth and success will follow.

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