Property Investing - An Obsession?

It is common to hear at dinner parties about the investment “opportunities” in property, however it might be time for a reminder. Gambling on — sorry — investing in residential property does not always turn out to be a bed of roses. You have to deal with tenants who may not even pay you! I have clients where the aggravation of managing their buy-to-lets has caused them endless stress and they would rather simplify their life.

Then the buy-to-let investor tells me that they are earning 4, 5, maybe 6% yield, but on a closer inspection of their accounts most of this was wiped out by the agents fees, insurance and a new boiler!

Robert Shiller, a winner of the Nobel in economic science, has studied this topic and his research shows that from 1890-2014 ( a decent time period for analysing data), after accounting for inflation, home prices have risen 0.3%.  So while you may love living in your home, it may not be a very good investment .

Even though the data and the evidence show us one thing, we can have a hard time accepting that we’re average. We may even believe the data while also believing that we are the exception to whatever rule the data proves. As a result, it becomes very easy to convince ourselves that we’ll find the perfect property deal and time both our entry and exit into the investment perfectly.

We know successful property investors exist and between who you know and what you hear on the news, it may be tempting to believe you can be a successful property investor too. But as with most things, there is a difference between professionals who have paid their dues and people who are just pretending. The few, very successful property investors share three things that make them exceptions:

First, they’ve developed the unique skill of identifying undervalued properties. It requires many years of painful trial and error. The ‘Get Rich Quick’ book on “How to Become a Successful Property Investor” only makes the author richer.

Second, they have invested their time to understand this asset class. And again, the time required to develop that knowledge and translate it into positive returns is measured in terms of years, not days or months.

Finally, they have relationships. Who you know matters and it can be the difference between getting the deal or leaving empty-handed.

Despite recent headlines, I hope it’s clear at this point that property investing isn’t easy. It’s a category that relies heavily on skills that take time and money to build. But that’s a reality frequently skipped over by speculators promising a quick return. Don’t let the noise confuse you. For most of us, a house will be just that. A house. If you want it to be something else, like the source of your retirement income, be prepared for an experience that may not meet your expectations.

Lance Baron

Certified Financial Planner (CFP) based in East Sussex, UK. We support people in Southeast England with more than £500K to invest by building a financial plan that will help them live the life they want… until age 100