The Inspiration Behind This Episode

I want to give you the background of where the inspiration for this podcast actually came from. 

I have been watching a lot of short and funny videos on YouTube and I seem to be interrupted constantly by these very annoying ads telling me all about investments and property investing. 

Obviously, the algorithm is at work and knows that that’s an interest of mine. 

But what really sparked the inspiration for today’s episode was there was a particular group whose name I won’t mention, but they probably had three or four ads that I’ve seen over the last week that are really advocating that they take a research-based approach to their property investing selection.

They talked about relying on actuaries, on research teams using very emotive language about how and why there is a property boom expected for the second half of 2022. 

Now, I looked them up and came across a very mixed bag of reviews.

There’s no doubt that they are ultimately selling research and education designed to sell units off the plan. 

But these are just a sample of many of the ads that I often see where people are talking with conviction, using very emotional language, and trying to tell you that if you do not listen to them, if you don’t buy their product, take on their advisory services, or buy their education, that you will miss out or that you will be harmed. 

Nobody Can Predict the Future of the Property Market

I guess my feeling about this kind of marketing is number one, it’s a bit unfair to try and use emotional language to compel you to invest, it’s never a great starting point. 

But I think the bigger concern that I have that I really wanted to make the focus for today’s podcast and this is something that my husband and I talk about all the time, is that there is no way nobody has any clue what the future of the property market holds.

The reason I can say that with conviction is over the years, I have followed many subject matter experts who make proclamations about what was going to happen in a particular market or in a global market in the months and years ahead. 

I’m going to be very generous and say that half the time they get it right, and half the time they get it wrong. 

For everyone that gets it right, there are probably a dozen that get it wrong. 

So that’s really the starting point for this podcast which is to stop listening to people trying to tell you which way the market is going to move, because I feel in the 25 years that I’ve been investing, I am yet to meet someone who consistently predicts with a high degree of accuracy what will happen in a very short space of time. 

Could they be right? Yes. But could they also be wrong? Absolutely. 

Your objective as an investor, because there is no certainty and if there was, everyone would be doing it – is not to look for advice or look at professionals to gain an insight into their crystal ball. 

Your job as an investor is to work out how you quantify the risk, mitigate it as much as possible, and then make informed decisions about which assets and investments are in alignment with your goals. 

I would say to you that the problem or the challenge, or the big one that prevents these wealth experts from making strong predictions about the direction of the market is that there’s chemistry and there’s science.

And when it comes to economics, what I know to be 100% true is most people are trying to guess what will happen.

There’s economic theory, there’s that value-based investing theory, there’s all that good stuff. 

But at the end of the day, the thing that I have witnessed in having lived through several cycles now is that you cannot predict what the government will do, you cannot predict what the lawmakers will do, and you cannot predict human emotion. 

You almost have to think of economics as a bit of a chemistry set. 

There are all sorts of pressures and influences going into the market. 

A really good example of this is that the Federal Reserve in the US has come out and said that there are going to be a series of 7 interest rate hikes over the next 12 months or so. 

The commentary amongst my mentors and my network of trusted advisors is that no doubt they will probably overcorrect and cause other problems in the economy. 

So if one of the most powerful nations in the world can’t get it right, how on earth do individual property and other wealth experts have hope in hell of predicting with great accuracy, when they don’t actually know what the government responsible be?

If you think about the last two years where we’ve really witnessed some catastrophic events because the government put their hand in their pocket and gave out a whole lot of handouts, assistance and support, most people got through the last two years relatively unscathed. 

I would say from a sentiment point of view, feeling fairly optimistic, but to come out and categorically say now, that we’re going to get another boom in the second half of this year is really just a ploy or a play to sell properties right now off the plan and make a grab for money, which I hate saying that because there are some really great people out there doing some good things in the space of property investment advisory.

Key Takeaway #1: No One Can Predict the Future

But it’s really leading me to the three keys that I want to share as part of this podcast. 

The first is that no one can predict the future. So do not make any investment decisions off the back of claims that something is a sure thing.

The second thing is I would say you need to have your investing rules. I’ve talked about this a lot in past podcasts. 

But now more than ever, it’s not really a time to be thinking and behaving intuitively because there are too many pressures in the market right now.

If we talk from a purely factual basis, there’s no question that there are some economic pressures on the horizon.

We’ve got interest rate rises, we’ve got an inflationary rate right now which we haven’t seen for about 40 years. 

There are all sorts of things happening in the market, so if you do not have a good foundation in terms of your investing rules to guide your investment decision, you are bound to step into something that doesn’t serve you.

Key Takeaway #2: Know Your ‘Investing Quadrants’

The second real key that I want to kind of raise today is there is a framework that a really dear friend of mine, Mike Zlotnik created called the investing quadrants. 

If you imagine like some crosshairs, at the top on the vertical axis, you’ve got investment grade investments and down the bottom, you’ve got speculative and across the horizontal axes at one end you’ve got income, and at the other end, you’ve got capital. 

What you need to do is think about those four quadrants. 

In the top left quadrant, you’ve got investment grade investments that have income-focused.

In the top right-hand quadrant, you’ve got an investment grade but you’ve got a growth focus. 

Then in the bottom left, you’ve got income-focused but speculative. 

And in the bottom right, you’ve got speculative with a growth goal. 

If you can start to think about where the investments that you are considering fit and which quadrant do they maybe straddle a couple.

I’ll just give you an example of what I mean when I say investment grade.

Investment grade is really a reference to the types of investments that really experienced investors are predominantly focused on meaning they want very little speculation. 

They want as much of a not guaranteed, but they want to really stack the odds in their favour and they underwrite deals to such a degree that you would call them investment grade. 

So an example of this, if you talk about the top two quadrants, the top half, if you had say, for example, syndication for an apartment complex where from day one, you were going into that deal predominantly because the income stream was there.

Yes, they might make improvements to the property and increase rents and renovate it a little but you’re going in because of the income stream. 

Now on the other side, you might do a similar project which might have some either cash flow neutral or a little bit positive but there are plans in place to improve an asset and massively increase its value through forced appreciation through improvements either because that asset has been underutilised or undermanaged.

But in both cases, those are investments or assets above that middle line fit into what we call investment grade. 

So we’re not banking on a rising market. We don’t care if the market goes sideways. Even if the market goes down, there’s still a pretty good probability of success in those kinds of projects. 

On the bottom side where we’re talking speculative, that’s where you can often find some really lucrative deals. 

Now interestingly, Australian real estate for example sits squarely below the line in the growth quadrant speculative growth and that really surprises a lot of investors. 

The reason it surprises people is that we talk about real estate particularly in our country as if it’s a sure thing like the market can only keep going up. 

We’ve been very fortunate that for many decades now, the government continues to pull levers and make concessions to keep the property industry and the property market on a fairly even keel. 

There are too many jobs. There are too many people reliant on it. 

I guess the feeling is that it is the bedrock of our country and so what happens is people buy real estate and really what they’re trying to do is predict with as much certainty as possible, what is the probability that that piece of real estate is going to go up in value over time. They are speculating that that asset will go up. 

Now there are things that they can do to stack the odds in their favour again, but they are relying on a rising market.

If the market goes sideways or if the market goes down, they lose and that’s it. 

So it’s really important to kind of get a handle on those cashflow quadrants. 

If people are interested in that, I’m fairly certain I’ve spoken about this many times on past episodes, but feel free to poke me or reach out and ask more about that. 

But if you can start to understand even at a really basic level what those quadrants are, it becomes this additional filter over which you look at every investment that you’re thinking about. 

Now, just to give you an example, if you thought you were going into a period of high uncertainty or volatility, I personally, I’d be leaning away from those speculative-grade investments. 

Knowing your quadrants can actually be another tool in your toolkit to help you make investment decisions.

Key Takeaway #3: Study Your Market

The third real point I want to drive home today is that watching those YouTube ads kind of made me feel uneasy and I was trying to work out what is it about these ads that make me feel uneasy.

And I realised that I was once a very naive and innocent investor because we all have to start there. 

I didn’t have anyone guiding me or giving me a handout or helper. I had many courses and mentors that I committed to over time. 

But I think the thing that made me uneasy about these ads was that the way the world is moving, it didn’t use to be this way. 

But there is now a massive confusion for investors around what is fact and what is marketing. 

The big point that I want to drive home today is that nobody can predict the future. Nobody. Because if they could, we’d all be bajillionaires.

If you don’t start to question the logic and the data presented to you when you’re making an investment decision, you are putting blind faith in the people that you’re aligning with. 

I’m not saying you have to be really awful about this but there’s no shame in saying to someone, “Where did you get that data from? Where did those facts come from? What have they been based on? Who did you purchase the data from?”

There are some very prominent data houses all over the world that are reputable and are not necessarily biased either for or against the market. 

They’re great sources of data to look at, data published by governments, by the Bureau of Statistics, by councils, everyone has their own flavour and their own way of describing it. 

But the problem is that marketers will get a hold of all of this data and then spin it to make what they are selling seem favourable. 

I used to joke about this but people would show me these glossy brochures for real estate that they were thinking of buying. 

I know now that I personally, I’m not a great salesperson. 

But I personally believe that if you showed me a house and gave me an address, I could pull enough data together to compile a very convincing argument for why it should be a property you should buy and that is the danger of data.

Statistics are the same. I don’t know if any of you guys studied statistics at school or remember statistics at university. 

But the thing that I realised coming out of studying statistics which just quietly, I took it because I thought it was going to be a blood unit at university and it turned out to be the opposite. 

What I got was that it absolutely is easy to manipulate data to give you the statistical result that you want. 

So whether you’re listening to research on the radio or on television, you’re listening to statistical data that kind of proves or disproves something, just take it with a grain of salt because there’s no question in my mind, these are all things you should be tapping into if you want to be a successful investor. 

But what I would also say is that given the current environment, given the limitations being placed upon many investors in terms of how much they can borrow, and how quickly they can accumulate real estate, every deal needs to be thought through and every investment needs to count.

Do not invest blindly and do not put all of your faith in one person.

Layer every investment decision that you make with your own common sense, investing rules, and judgment. 

I think, unfortunately, the lone wolf model, which I’ve talked about in other episodes is definitely the hardest model for wealth building and you absolutely should leverage the skills and ideas of other people.

But I would also say at the end of the day, nobody cares about your money as much as you do. 

So it’s in your interest to learn to ask pointed questions at the beginning of where you’re working with someone.

Outro

So, guys, that was a bit grim today, wasn’t it? If you’re like me, no one likes their YouTube interrupted, but if you are going to go down some rabbit holes and look for experts to support your investment decision making, just be careful that they are in fact the real deal. 

Till next time, guys. Take care. Please reach out on socials if you have any episodes or content that you want me to cover. 

If you’re a business owner feeling frustrated that despite doing everything right in the property investing playbook and you’re no closer to financial freedom, then head over to www.inkosiwealth.com to learn more about how you can use alternative investments to catapult your investing income and blend strategies to shave decades off your timeline to financial freedom.

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