The biggest investing hurdle
16th October 2006
Whether you're a first-timer or an experienced
investor, it pays to ask yourself whether your own fears are getting
in the way of your success.
The idea of buying your first investment
property can instill a paralysing fear. It seems so much could go wrong!
Indecision might be a far more appealing option. So you tell yourself,
"I'll get around to it one day." As a more experienced investor, you
might be over that initial hurdle. But are you nervous about investing
in commercial property or shares? "I don't know enough," you might convince
yourself.Fortunately, fear is a state of mind you can control, once
you're aware it exists. So take a moment to ask yourself two very important
questions: What do I fear about investing? And how justified are those
fears? Here we examine some strategies for keeping some common fears
in check.
Tip number one
Only listen to people who know what
they're talking about
If you're easily influenced by others' opinions - be careful who you
listen to.
"There's a lot of pressure on people not to invest," says Peter Spann,
property author and CEO of Freeman Fox financial services. "Their friends
and parents are all concerned that they're going to make mistakes."
Your loved ones may genuinely want to protect you, but Spann suggests
they may just be trying to rationalise their own inaction. "Everybody
knows that they should be investing. But they may not know where to,
or how to start," he says.
Tip number two
Don't feed the fearThe media has
a habit of being very sensationalist when it comes to the property market.
"In my seminars I often used to put up two very strong headlines," Spann
says. "One used to be something like 'Property market set to boom' and
the other was 'Property market in the doldrums'. And I'd say, 'what
time frame do you think there was between those two headlines?' and
people would say, 'a few months? A couple of years?' Well, they were
in the actual same newspaper.
"People are very susceptible to (the media) and they've just got to
relax," says Spann. "Generally most of the press isn't irresponsible,
they're just not well informed." Spann doesn't read the general press
or watch the news. He only reads the Australian Financial Review and
specialist magazines.
Tip number three
You don't need as much knowledge as you
might think "People think they need a lot of knowledge. They think it's
complex," says Spann. "And they don't know where to get that knowledge,
and what is a trustworthy source. And the fact is you don't really need
a lot of knowledge to invest in the share market or property." To get
started, Spann suggests a beginner should find a friend who owns three
or four properties who can help them through the basics. "If they've
got three or four (properties), they just need to find somebody who's
got ten," he says. There are also plenty of books available. Some instill
paranoia about being ripped off at every turn. Others are extremely
optimistic. Spann suggests sampling both schools of thought and realising
that reality is somewhere in between.
However, he emphasises that the best knowledge is actually gained by
doing something, rather than studying the theory. This echoes the view
of international best-selling author Napoleon Hill: "Knowledge will
not attract money unless it is organised and intelligently directed,
through practical plans of action… Lack of understanding of this fact
has been the source of confusion to millions of people who falsely believe
that 'knowledge is power'." However, if this all sounds too hard, you
can always pay a reputable buyers agent to find a property for you.
You can locate experienced agents through the Property Buyer's Agents
Association of Australia (www.pbaaa.com.au)
or the Real Estate Buyers Agents Association of Australia (www.rebaa.com.au).
Tip number four
Risk management will help you sleep
at night
(a) Interest rates
The easiest way to end your fear of interest rate fluctuations is to
opt for a fixed rather than a variable rate. Property author Jan Somers
says three-quarters of the rates for her loans are fixed.
"Whether interest rates are high at the time or low at the time, I will
always fix them," she says.
(b) Income protection
If you're concerned about job security, you can take out income protection
insurance. However, it can be expensive. Somers suggests some people
might be better off putting aside that money.
"The best income insurance really is to set yourself up; always have
cash on hand, and always have access to a credit line," she argues.
(c) Landlord's insurance
Landlord's insurance can cover you for damage to your property or unpaid
rent. (Check that your policy covers malicious as well as accidental
damage).In all his years of investing, Spann has only ever had one serious
incident of property damage by a tenant. But he claimed the damage on
his landlord's insurance. "I ended up with a really nice reno!" he says.
"Even with basic vetting you can't go too far wrong. The average Australian
is not trying to destroy the property that they (live in)."
Tip number five
It's okay to make mistakes Spann points
out, "When you go into (an investment), your view should be to hold
that property for a long period of time… So if you make a mistake it's
all going to be dealt with in the wash in 10 years anyway."
For example, Spann has friends who bought a property through a marketer
10 years ago in Brisbane's outer suburbs. The purchase price was tens
of thousands of dollars above market value.
"That property went nowhere for eight years. And they persisted, persisted,
persisted. And then in two years it tripled (in value)," he says. "Was
that a smart investing decision? Well, probably not. In other words,
if they'd taken their $80,000 and put it somewhere else, they would
have got a better return or a faster return. But it still sorted itself
out in the wash, in the total (property) cycle."
Tip number six
Inaction is the biggest risk of all "Inaction is the greatest risk,"
argues Spann.
"The government is determined to make people responsible for their own
retirement. "Your real wealth, if you do nothing, will actually decline.
"The risks of not investing, to me, significantly outweigh whatever
mistakes you're likely to make in actually having a go."
© Australian Property Investor magazine -
www.apimagazine.com.au.
Reproduced with permission. To subscribe to API, go to
www.apimagazine.com.au
or pick up a copy from your local newsagent.
