How to invest like the pros

I was having my hair cut the other day when Harry my barber said: “Michael – I’m going to get into property investing and I’m going to make a fortune because I’ve learnt to invest like the pros!”

Each time I visit Harry the conversation always seems to revolve around property, but when I heard Harry say he learnt “how the pros do it” I was concerned. I know Harry has been reading every property book he could get his hands on, attending lots of seminars and watching all the free DVD’s the property marketers are sending out.

I also know that while Harry enjoys his job, he’s sick of the rat race and trading his time for dollars. And he feels he missed out on the last property boom and wants to make up for lost time.

He wants to get rich quick.

In the past when we’ve discussed property Harry was scared to take on more debt and get into property. Instead he paid down the mortgage on his home. Now while he has the “security” of minimal debt on his home, he feels he has to catch up with many of his friends who took the plunge into property a few years ago and now own one or two investment properties.

Of course last year as our property markets turned I recommended Harry use the equity in his home to get into property investment, but at the time the memories of the GFC held him back. But now, armed with all his newfound knowledge, Harry was feeling confident enough to finally take the plunge into property.

So when Harry told me he knows how to invest like the pros, I had to ask: “Okay Harry, how are you going to do it?”

“Easy” he said. “I’ve been to a seminar and signed up for a course.”

Then he pulled out the advertisement in the magazine that attracted his attention. It promised the ability to control millions of dollars worth of property with none of your own money and by bypassing the banks. It also explained how the course presenter had made millions of dollars in seven days.

At that point I felt sorry for Harry and for the thousands of novice (and some experienced) property investors who will be taken by the new breed of property spruikers who are once again out in force.

Sure the promises sound enticing… the opportunity of getting a life altering fortune overnight by barely tapping the easy button as you breeze by en-route to your lounge chair on the beach.

But why seven days? Why not seven hours? Or seven minutes?

Of course I am being sarcastic! You can’t become wealthy in seven days. You probably couldn’t even read the course material in seven days.

Nor can you earn or sustain wealth with a four-hour work week as others promise from their courses.

Just look at the ads: we’ll teach you how to buy a property to renovate and sell for a profit – a great replacement for your job. Yet they don’t explain how after tax and GST and stamp duty on your next property you are likely to be left with very little, if any profit.

Then there’s a course that teaches you how to develop four properties, sell three and keep one debt free – sounds great. But they forget to mention that the banks aren’t lending to property developers at present – especially ones who have learnt their craft from a DVD course.

What about the seminars recommending buying American properties? Sure they are cheap, but they forget to mention the 30 million vacant properties in America or how 20% of homeowners in the US have negative equity.

The problem with this nonsense – that you should expect childishly simple, microwave instant solutions to complex opportunities and when you don’t find it in one place, you rush off after the next pretender peddling it – is what stops the average Australian ever becoming wealthy through property investment.

The idea of instant simple and easy has risen from being laughed at and ridiculed, to being the expectation and entitlement of a new generation of investors.

Here is what the real pros know…

You can’t create wealth through property overnight, but you can certainly become very rich in the medium- to long-term by knuckling down and seriously applying yourself in a dedicated, disciplined, persistent way. You get there by following a proven system and by having a safe property and finance strategy. You then implement this by buying the right property, in the right location, at the right price and holding it for the long-term.

Not by adding hot water to a packet of magic beans and counting to seven.

Yes you can and should accelerate the process by learning the strategies of value adding through renovations and development, but you can’t skip the fundamental process.

While property spruikers went quiet during the real estate downturn, unfortunately the new property cycle is bringing out a fresh group of “property pretenders”. There are now property “experts” out there selling advice and courses despite never having built their own property portfolios.

This makes it timely to remind readers that seminars that promise easy wealth through property have all too often led to financial ruin.

It wasn’t that many years ago that Henry Kaye caused 13,000 consumers to lose around $60 million after attending his seminars.

To be clear and reconcile my position, I have been conducting educational seminars for years, but I don’t have any properties for sale at the back of the room and I’m not paid to make a particular property developer’s project look favourable. And I don’t, and never have, promised instant riches.

Sure I “sell” the services of the team of property professionals at Metropole, but they are independent and unbiased – and that’s an important differentiating factor. If you are gong to listen to someone’s advice make sure it is unbiased and not self-serving.

On the other hand a “spruiker” is usually someone who has a vested interest in selling a product, project or property and does not openly disclose the fact. This is very different from attending a seminar conducted by someone who is licensed or qualified to give independent advice and has unrestricted access to the property market and no vested interest in one particular property or product over another.

Be particularly cautious if people are willing to offer advice for free and if it sounds too good to be true, it most likely is.

Making things worse today is the internet and the mindset it has produced which puts born-yesterday pretenders and academic theorists on even footing with long established experts who have painstakingly amassed their knowledge and have proven it over time in the real world.

What has happened is that in their haste to hitch on to this new property boom, many beginning investors have chosen to devalue “credibility” in favour of “believability”.

Let me explain the difference. Credibility requires education, experience, track record and proof of value – all things produced by an investment in time. On the other hand, believability requires only the ability to create belief – and that’s so much easier to do today with a fancy website and a glossy brochure.

I’ve recently come across a new firm that is “pretending” they are Australia’s largest buyers agent. Despite having a small team they “pretend” they have offices in most Australian capital cities and New Zealand. I’m sure their glossy brochure and fancy website impresses lots of potential clients

Then there are the seminars that make outrageous promises. “Come to my course and I’ll teach you how to invest like the pros and buy property with options – you know what I mean…put down $1,000 and control millions of dollars worth of property.” Or the ones that say “Buy my DVD course and become a property developer over the weekend. You know… build four units, sell three and keep one free of debt.”

All this sounds to good to be true doesn’t it? Of course it does!

So what can Harry and other property investors learn from what happened in previous property cycles? Or will they be doomed to repeat it?

My suggestion is to educate yourself and become financially fluent. But be careful who you learn from. As I’ve already explained, find a credible source, not someone with incredible promises. This will allow you to be in control of your own financial destiny. Of course this doesn’t mean you should do it on your own.

To become a successful investor you will need to surround yourself with a team of independent and unbiased professionals – a team of people who are known, proven and trusted.

Then go ahead and take advantage of the new property cycle because the future is bright for property investors.

Have you been tempted by any clever marketing or promotions? Let us know by leaving your comments below.

Michael Yardney is the director of Metropole Property Investment Strategists, a best-selling author and one of Australia’s leading experts in wealth creation through property. For more information about Michael visit www.metropole.com.au and www.PropertyUpdate.com.au.