Stuart Zadel talks about the greatest risk in property investing: you.
When you start out in property, you are your greatest risk. Make no mistake, what you don’t know, will hurt you. Your lack of knowledge, experience and skill is as great as it will ever be.
However, if you are fortunate enough to have or seek out a wise mentor at the beginning, and be smart enough to listen, you’ll hopefully avoid many mistakes for the unwary. Or as I say, ‘you can dodge many bullets’.
I was not so fortunate.
MY PROPERTY INVESTING STORY
My first property I bought in 1994 went well enough. It was a 2-bed, 1-bath, plus car space unit in Cronulla for $152,000. I had just started my gym in Cronulla with my brother, and we lived in this property for a long time. We cosmetically renovated this unit many years later and sold it for $382,000 around 2009.
Not a bad result, all things considered, for my first go.
During that time, around 2001, I also bought my first investment property, two in fact. I bought them brand new, through a slick ‘mum and dad’ property investor ‘club’ that was little more than a two tier marketer in hindsight.
I paid $299,000 each for both of these 2-bedroom, 2-story apartments in Parramatta, off the plan at the time. They ended up being severely negatively-geared, well over-priced and I sold them more than 10 years later for around $307,000.
WHAT I DIDN’T KNOW HURT ME
What I didn’t know, hurt me. I didn’t do my homework. Well, that’s because I didn’t know what homework to do in the first place! I trusted people unworthy of my trust. They even got a $16,000 per property marketing fee to sell them to me. I lost money when I…
… bought them (paid too much)
… held them (rent didn’t cover interest and outgoings)
… sold them (after agent’s commission, marketing fees etc)
Not to mention the opportunity costs over those 10 years!
WHAT I SHOULD HAVE DONE
And you know what, I am so grateful for that experience! It’s one of the main reasons why I do what I do today. And, if I was starting out again, here’s what I would do. I’ll go for:
…lower-priced properties regardless of what I could afford. If I couldn’t afford my own area, I’d shift areas.
…properties at or below the average price for that area.
…established properties in established areas (less risk, more certainty).
…houses, not units (land appreciates, buildings depreciate).
…properties selling below market value (if I couldn’t, I wouldn’t buy).
…properties I could cosmetically renovate at first, structurally renovate later, or in fact, subdivide.
I’d repeat that, over and over again.
When you’re starting out, you are your greatest risk. Do your utmost to eliminate that risk.