My greatest property mistake

Last week on our podcast, The Property Planner, Buyer and Professor we each shared our greatest property mistakes. I’ve written about mine before, in fact it’s the very first chapter of my book.

I asked for advice from someone I trusted and I didn’t take it.

As a cautious and relatively impressionable young adult, I planned and planned, but ignored some of the most valuable advice I sought.

I had borrowing capacity up to $160,000 after saving hard over my university years. I was a permanent part-time delicatessen worker at my local supermarket and my hours were nightshift; a favoured option for a uni student who could enjoy the benefit of penalty rates. My Sunday night shift would earn me ‘double time and a half’ after 9pm and these awful hours helped me save a $65,000 deposit.

I visited a family friend who was an experienced real estate agent and was particularly obliging with measured advice. His wisdom in hindsight was strong and he imparted great information about the virtues of buying an older dwelling in a gentrifying area where future demand would be strong. He collated printed advertisements in a folder for me and arranged my open for inspection list for a couple of weekends.

One house comes to mind. It was on a busy road, but a road that would no doubt become every local developer’s focus in the coming years. The property was within my budget and the house was particularly rundown, but very liveable. The suburb was Seaford.

Bruce’s train of thought came from that of future development potential, or at the very least, a property with latent potential for an exciting sale in the not-too-distant future. At the time, the condition of the house and the distance from town left me feeling uncomfortable, so I passed up the opportunity.

I found a mid-century house in Bentleigh instead, and with Bruce’s help and some behind-the-scenes comparable sales analysis, I negotiated a purchase price of $132,000.

I then made the dreaded mistake of calling my Dad before I signed a contract.

My Dad is fabulously reliable and generous, but he’s not a property professional and I’d argue he has no greater property advisory skill than most Dads. My Dad was worried about all of the things that protective Dads worry about, from debt to the maintenance of the house.

So I didn’t buy the Bentleigh house. My Dad suggested something new so that I could enjoy the spoils of a knew kitchen and the smell of fresh paint. Parental endorsement felt good, so I followed his lead and signed a contract to purchase a townhouse, off the plan in Mordialloc.

And the rest is history.

What I learnt from this mistake over the years were many important things;

• I ignored Bruce. I should have decided on my support-person and not invited others in. It’s hard to tell that to a twenty year old, but I regret ignoring good advice.
• The importance of Land to Asset Ratio cannot be underestimated.
• Time does heal if you start investing early enough in life. While I could have made some serious gains by selling the Seaford block to a developer, I’ve recognised and heeded other fantastic opportunities since then.
• Property is forgiving in the long term. The Mordialloc unit wasn’t the best idea, but in today’s market it is now worth around five times more than I paid for it.

This podcast got me thinking about the typical mistakes that I see people regret. By the time people come to me for help, sometimes their blockers or mistakes are really getting to them. So here they are, in no particular order.

Paralysis by Analysis – too many people try to over-finesse it. Perfection is impossible when it comes to property. Only “very successful” exists. Running numbers, delving deep into data, fearing a 99% result instead of 100%, and spending too long doing this can, at best lose the investor valuable time in a moving market, and at worst derail the whole project altogether when it is too overwhelming to even make a purchase decision.

Not being on the same page as a partner – this mistake overturns many a good property investing opportunity. By ignoring your partner’s risk profile, fears and sensitivities, you can keep a decision hanging in limbo land, and make your partner feel terrible for it. A baby step on a cheaper or more cashflow property can be a great way to get their feet wet and build their confidence in the process without pushing them off a diving board. The critical thing to note if applying this approach is to avoid selecting a cheap property with nasty compromise, or to avoid targeting an asset that the banks won’t like.

Targeting ‘free’ advice or ‘free’ Buyers Agent offerings. There is no such thing as a free lunch. Buyers who fall prey to this type of offering are overpaying for an asset and covering a spruiker’s or marketer’s sales commission in their purchase price. Aside from getting ripped off, they are also risking the asset underperforming if it is brand new.

Being impatient – property is a long game and should be treated accordingly. If we run our portfolio like a share trader’s, we’ll erode our capital very quickly with stamp duty and agent’s selling fees. If fast profits are the goal, a different asset class should be considered.

This chart demonstrates the difficulty that any investor would be faced with if trying to time a market by observing the leading indicators.

And my last, but favourite mistake is target at those who are impetuous. Moving too fast, and without thought or care can wind up in the form of regret. Too many buyers put more energy into arranging a holiday or a shopping trip.

It’s not a pair of jeans. It’s a property.