Disclaimer: Nothing is this article is meant to constitute financial advice of any kind, and is the opinion of the author only. Seek professional advice before making any financial decision.
Article ‘Tempted by a Booming Market’? by Graeme Fowler written in 2004.
A few days ago, a man walked into my office wanting to talk about investing in New Zealand Real Estate. Apparently, he had just visited one of the real estate companies in town, and they had suggested he come and talk to me for some investment advice. This is how the conversation went:
Investor: I was told you might be able to help me with some projections. Graeme: Okay, what sort of projections are you after? Investor: On real estate prices over the next five years. Graeme: I’m not sure what you mean by projections, can you explain please? Investor: Well, I have a group of investors that have some money to invest, and we want to buy some properties together as an investment. I need to be able to tell them how much we can make, and what sort of returns we are likely to get in five years from now. Can you help with some projections on prices? Graeme: So, you mean you want me to tell you what prices will be in five years time, compared to what they are now? Investor: Yes please, that is what I am after. Graeme: I have no idea what prices will be in five years time, two years time, or even this time next year. I would only be guessing, as would anybody else you ask. In fact, this is one of the major reasons why people lose money investing in property; they go into it for the wrong reasons, hoping that the properties they buy always go up in value. Then when they don’t go up, or they drop in value, they get despondent and sell. I have written a book about real estate investment that explains about this. You would be better to read it before doing anything else, especially if you are investing money for other people. Would you like a copy to read? Investor: No, I don’t want to read a book; I just want to invest some money in real estate because I’ve been told it’s a good investment. Graeme: Well good luck, but I’m sorry, I cannot help you with what you’re after.
I was at first stunned by what this guy was wanting, but on reflection, realised there are probably many other investors just like him. They hear real estate values are going up, so they rush in to buy something without any knowledge of what they are doing. I don’t ever try to predict what is going to happen in the market, but if I were to guess what will happen, it would be that the market will start to change soon, especially when people like this are starting to become real estate investors.
I remember at one of the Hawkes Bay Property Investors’ Association meetings I attended back in early 2000, everyone at the meeting was fairly despondent about the real estate market. I think I was one of the only people that put my hand up at the meeting when they asked who was looking at buying more properties during that year. The majority of people were either holding what they had, or selling. It was recommended by the President at the time, plus a few elderly investors, that a cautious approach should be taken, and not to take on any more debt because there was so much pessimism with the market. They were saying that house prices were far too high, the market was at a peak and perhaps even to sell one or two properties if they had a larger portfolio. I said to my friend Richard who was sitting next to me at the time – ‘that’s it – I’m going to buy as much as I can this year!’ I ended up buying 28 properties that year and 32 the following year. The majority of people were pessimistic, and I was buying everything I could.
Having said that, when I buy any property, it must make sense to me at the time of purchasing, not only make sense if the market increases by some fictitious amount year after year. It seems with both real estate and shares, when the market is rising, everyone wants to get in, and when the market is falling, everyone is running away from it. If your favourite supermarket started to put all its prices up, you would walk away from it, just as you would buy more from them if they were having a big sale. Investing in real estate is no different, but people do the exact opposite to what they would do when buying everyday products.
If you are just beginning to invest in real estate, think carefully. Are you doing it simply because it seems like the popular thing to do and all your friends are doing it? Take a long term approach before you do anything, get some advice or opinions from people that have been successful, not in just up-markets, but over a long term. Also, use a mentor if you think it would help, and keep developing your own positive mindset and psychology.
Graeme Fowler
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