How to create wealth when others see distress
The most frequently asked question I get from investors is “when will the market recover?” My stock answer is, “why is that important to you?” I asked the same question to Robert Kiyosaki international investor, author of the US market when I interviewed him at one of his events in Auckland, New Zealand in May 2009. His answer was probably the last quarter of 2012 and if there is no recovery by then possibly 2015. He added that we couldn’t accept that if the market recovers that our property portfolios will automatically recover. It might be good for access to more bank finance, more property transactions for homebuyers but insists that successful investors mainly make their money in the downtimes through leveraging their resources in all types of markets.
The Global Property Guide reports that in Q1 2011, house prices fell in 25 countries, and rose in only 10 countries. According to the UK's National Institute of Economic and Social Research, UK house prices will continue falling until 2015.In the US, Freddie Mac reports that the US housing market is showing strain as well. The S&P/Case-Shiller® National Home Price Index fell 5.1% between the first quarters of 2010 and 2011.
What about South African house prices? FNB’s May House price index notes that April real house price growth rate remained negative (-2.4%), and a period of house price decline is expected in the wake of interest rate hiking, or of slowing economic growth. Does this mean 2015 is a reasonable prediction for the turning point in the South African market too?
In vital signs we trust
The much-publicized double dip has happened and the drop was only 4% since last June whereas the first decline in the US was 32% from April 2006 to May 2009. Even in the Great Depression housing prices dropped 30% according to the S & P/Case- Schiller index. Not much further room for further dips one would think. SA housing prices are comparable to 2007 at the height of the boom while US house prices are closer around 2002 prices, which demonstrates how deep the US economy has been affected compared to SA. In SA there are currently around 18 000 property transactions per month compared to 45 000 per month in 2007. This will probably continue at the current pedestrian pace for at least the next year or so.
Have you made the shift?
More psychology is needed in investing. Change is inevitable; if we don’t change and transform ourselves change will take charge of us. We have moved from the agricultural age 30 000 years ago followed by the industrial age 300 years ago to the information age 30 years ago, The shift from 2006 onwards has been the flow from local to global or glocalisation, the flow to and power to the individual.
Here are six intelligent ways to always create wealth in property
1: Set your goals and strategy from the outset
What are you looking to achieve? Are you looking for capital growth or passive income? By what date do you want to achieve that? For example – what do you want 31 December 2012 to look like financially?
2: Have a solid base to start
Where are your funds now? Are they accessible or are they tied up? If you are borrowing money to invest has the finance accessible?
3: Invest with the head not the heart!
It is easy to fall in love with a property for all the wrong reasons. Ask yourself does it fit in with your strategy as an investment?
4: What is your exit route?
This should be one of your first considerations. Do I want to hold the property forever or buy and sell in a few years? When you want to realise your profit on sale who will want to buy this property? Are you making the investment widely sellable or are you limiting your options by being too specialised?
5: Learn how to use leveraging sensibly
Borrowing other people’s money to grow your portfolio is a great way to grow your portfolio quickly. If you do this make sure you are allowing for interest rate increases and rental lapses, etc. Work out a worst case scenario and then calculate how much you should borrow.
6:Buy under market value
You are more likely to determine the success of your investment by how you pay for your property rather than how much you sell it for. For example, if you purchase a property for say R600 000 with a real 20% discount you are already! Ensure it is a genuine discount by analysing comparative prices through using data like Lightstone. Attractive discounts can also be obtained by investing off-plan at the earliest possible stage.
