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Reasons Why Investors Stumble
Seems to be a lot of discussion on here about “you should listen to people who have failed as they have the best advice”.
I personally think that is a load of crap as many people who fail don’t learn from their mistakes, but for some it strengthens character and does improve their skills.
Here are some of many reasons (summarised) that I have found that people have had issues investing and I am sure you can add to the list. I will not go into great detail as this will all be in my book coming out Friday (joking!).
1 – Think investing is passive – It is not, it is a business and requires constant input and management (level depends on numbers of houses, systems in place). If you get into this game be prepared to put in some input if you want to do it well.
2 – House prices only go up – NO they don’t! They go up, down and sideways and even die. The equity you hold in property is paper money it is NOT real, it is the difference between mortgage debt and market value on any given day.
3 – Negative Gearing – If you are topping up $ 100 pw when the tenant ($ 400pw) is in place then you will pay $ 500 a week when vacant. If you have a few houses then this is amplified, what happens if you lose your job or business fails in a down turn?
4 – Leverage – If you are leveraged then you use this to amplify your returns (hopefully for the positive) but it also amplifies your loses so is a double edge sword.
5 – Lack of planning – No strategy, no plan, no idea, some people are all over the place.
6 – Education – Don’t constantly learn, and are afraid of asking questions for the sake of feeling dumb so make fundamental mistakes.
7 – Cocky – Think the world revolves around them and the market will follow what they think (I don’t believe in fortune telling) and the market does what it wants so plan for changes.
8 – Insurance – Lack of it
9 – DIY – Think they have skills that are not there because they watched the Block on TV
10 – Procrastination – Taking too long to do things so nothing happens or losses are increased. A small loss won’t ruin you!
11 – Bank Hating – Anti the bank. The bank is your business partner, they want to make money but are risk obverse so they won’t just back your ideas, and even if you owe them millions you are still a nobody really in their world.
12 – Banking System Knowledge – No understanding of how they work, how they calculate serviceability etc.
13 – Greed – Enough said
14 – Borrowing to fund life style – If you live on borrowed money you are living off nothing but book value (equity) which is not real (very, very common)
15 – Blame Game – Always someone else’s fault (banks, councils, governments, tenants etc), you invest, you make the decisions that lead you to this point, so get over it and accept you stuffed up and solve the issues.
16 – Divorce – How stable is your relationship??? Set up structures that will may prevent a fire sale if you fall out (bought 4 houses at 13.6% average this way as need sale fast).
17 – Playboy Lifestyle – Don’t spend what you don’t have. If you need a flash car on hock to impress people get help. “live poor & grow rich” . Too many spend what they don’t really have and get caught out.
18 – Cash-flow is KING!!!!!! – Cash pays your bills not book value. No cash = defaults to the bank etc and how many mortgagees have we all bought.
19 – Listening to the wrong people – I listen to most people, and trust nothing they say till I have checked them and researched the information, most people are full of crap. Better yet find out who is doing what you want too (successfully) and hang out with them (eg. PIA’s) and learn.
20 – Lack of tenant market knowledge – Don’t know rents for areas, what tenants like (your customer) and how to get houses tenanted. And no tenants can’t just keep paying more and more rent.
21 – Over Capitalisation – Spend too much on renovations and don’t see any real increases in book value or rent so what was the point?
22 – Believe the hype – Start buying at the top of cycles because of media, mentors, deals etc and market corrects and they are wiped out.
23 – LVR – Just too much debt and no repayment systems in place. LVR is a book value / debt ratio so if prices drop LVR goes up and bank gets very nervous – that simple.
24 – Drugs – What else do I say. Best one was the $ 50+ million dairy farm portfolio sold (by BNZ) once the owner was busted for cooking up P in Springs Junction (one of many I know of buy the way).
25 – Interest rate changes – Interest rates change and you should hedge your bets. If you have no idea what hedge means then you better get learning!
26 – Lack of market knowledge – No idea what places actually sell for and are worth so on back foot from day 1. Blue chip used inflated registered valuations (one method) to dupe their customers and how many got wiped out???
27 – Diversification – They get into everything and think it is cool – Houses, apartments, flats, commercial, shares, and business. Restrict what you do and be the best at that not crap at 10 things.
28 – Got bored but still so many – Off to the beach for bit, might go to Kaiteriteri today for a swim (so many beaches to choose from) – Bragging – yes I am!!!!
I personally think that is a load of crap as many people who fail don’t learn from their mistakes, but for some it strengthens character and does improve their skills.
Here are some of many reasons (summarised) that I have found that people have had issues investing and I am sure you can add to the list. I will not go into great detail as this will all be in my book coming out Friday (joking!).
1 – Think investing is passive – It is not, it is a business and requires constant input and management (level depends on numbers of houses, systems in place). If you get into this game be prepared to put in some input if you want to do it well.
2 – House prices only go up – NO they don’t! They go up, down and sideways and even die. The equity you hold in property is paper money it is NOT real, it is the difference between mortgage debt and market value on any given day.
3 – Negative Gearing – If you are topping up $ 100 pw when the tenant ($ 400pw) is in place then you will pay $ 500 a week when vacant. If you have a few houses then this is amplified, what happens if you lose your job or business fails in a down turn?
4 – Leverage – If you are leveraged then you use this to amplify your returns (hopefully for the positive) but it also amplifies your loses so is a double edge sword.
5 – Lack of planning – No strategy, no plan, no idea, some people are all over the place.
6 – Education – Don’t constantly learn, and are afraid of asking questions for the sake of feeling dumb so make fundamental mistakes.
7 – Cocky – Think the world revolves around them and the market will follow what they think (I don’t believe in fortune telling) and the market does what it wants so plan for changes.
8 – Insurance – Lack of it
9 – DIY – Think they have skills that are not there because they watched the Block on TV
10 – Procrastination – Taking too long to do things so nothing happens or losses are increased. A small loss won’t ruin you!
11 – Bank Hating – Anti the bank. The bank is your business partner, they want to make money but are risk obverse so they won’t just back your ideas, and even if you owe them millions you are still a nobody really in their world.
12 – Banking System Knowledge – No understanding of how they work, how they calculate serviceability etc.
13 – Greed – Enough said
14 – Borrowing to fund life style – If you live on borrowed money you are living off nothing but book value (equity) which is not real (very, very common)
15 – Blame Game – Always someone else’s fault (banks, councils, governments, tenants etc), you invest, you make the decisions that lead you to this point, so get over it and accept you stuffed up and solve the issues.
16 – Divorce – How stable is your relationship??? Set up structures that will may prevent a fire sale if you fall out (bought 4 houses at 13.6% average this way as need sale fast).
17 – Playboy Lifestyle – Don’t spend what you don’t have. If you need a flash car on hock to impress people get help. “live poor & grow rich” . Too many spend what they don’t really have and get caught out.
18 – Cash-flow is KING!!!!!! – Cash pays your bills not book value. No cash = defaults to the bank etc and how many mortgagees have we all bought.
19 – Listening to the wrong people – I listen to most people, and trust nothing they say till I have checked them and researched the information, most people are full of crap. Better yet find out who is doing what you want too (successfully) and hang out with them (eg. PIA’s) and learn.
20 – Lack of tenant market knowledge – Don’t know rents for areas, what tenants like (your customer) and how to get houses tenanted. And no tenants can’t just keep paying more and more rent.
21 – Over Capitalisation – Spend too much on renovations and don’t see any real increases in book value or rent so what was the point?
22 – Believe the hype – Start buying at the top of cycles because of media, mentors, deals etc and market corrects and they are wiped out.
23 – LVR – Just too much debt and no repayment systems in place. LVR is a book value / debt ratio so if prices drop LVR goes up and bank gets very nervous – that simple.
24 – Drugs – What else do I say. Best one was the $ 50+ million dairy farm portfolio sold (by BNZ) once the owner was busted for cooking up P in Springs Junction (one of many I know of buy the way).
25 – Interest rate changes – Interest rates change and you should hedge your bets. If you have no idea what hedge means then you better get learning!
26 – Lack of market knowledge – No idea what places actually sell for and are worth so on back foot from day 1. Blue chip used inflated registered valuations (one method) to dupe their customers and how many got wiped out???
27 – Diversification – They get into everything and think it is cool – Houses, apartments, flats, commercial, shares, and business. Restrict what you do and be the best at that not crap at 10 things.
28 – Got bored but still so many – Off to the beach for bit, might go to Kaiteriteri today for a swim (so many beaches to choose from) – Bragging – yes I am!!!!
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