Byguest contributor Gerald Tay
Hereare four of my all-time favourite Conventional Wisdom Myths for the ordinary
investor.I define an ordinary investor as anyone who’s holding a full-time backbreaking
job,dependent on a job for income, maybe has a family to support, has some money toinvest, dreams of becoming wealthy one day, and wants badly to get out of therat race.
Thereis tons of information out there on how to invest in property: the internet,books,
seminars,newspapers, financial “gurus”, property “experts” and even your next-door
neighbour.Most of this “information” contains a grain of truth and a lot ofmisinformation.
Howdo the “gurus” fool so many people for so long? How do they get people tobelieve in
whatthey’re selling even after it has been proven time and time again to be a badidea?
Ijust realized one day how dumb the conventional wisdom is and questioned why
everyonebelieves in it.
Manyordinary investors have been fed with investment “knowledge” that is often
unusable,impractical or even nonsensical, by those with only self- interest to gain froma
saleor “experts” who know no more than the man on the streets.
Hereare the four Conventional Wisdom
Mythsfor the Ordinary Investor:
1. Buy and Hold a Property because it’s a GoodLong-Term Investment
Justlike equities and other investments, the word “Long-Term” is often misused and misunderstoodby many. It’s often uttered by salespeople who are out of touch with the changingdynamics of our highly volatile world. I mean, it’s sure going to be a long terminvestment for you… if you buy at the
wrongprice or the wrong property.
Anylong-term investment may lose money for an investor if he or she isinsufficiently educated (think mutual funds). Assuming that an ordinaryinvestor is lucky, his “anyhow invested” property goes up in value with the inflationrate. But he or she has already lost periods of great opportunities to invest(during property down-turns) that will give exponential growth of passiveincome (cash flow) to help him or her to get out of the rat race. The opportunitycost is too high.
Evena dead fish will swim downstream. A property that goes up in value by theinflation rate is called inflation growth and not investment growth. A greatproperty investment will always reward a smart investor with greater thaninflation returns plus a good positive cash flow every month.
Thebaby boomers in the USA are now facing a retirement crisis because theyfoolishly believed that property was always a good long term investment forretirement. However, the 2008 US mortgage crisis proved fatal and dashed thoseretirement dreams. They actually believed that such an event would never occurwithin their lifetime!
2. Buy, Hold and Sell Property for Capital Gains
You’veheard people who boast about how they make a fortune buying and selling properties,and you’re eager to learn how they do it. What if I say this strategy is no differentfrom gambling? And you don’t need to learn to gamble. I rather you go buy 4D orTOTO which is a lot less expensive (of course the odds are different).
Icall this the Buy, Hold and Pray strategy. As my late multi-millionairegrandfather put it, “Amateurs invest on capital gains. True-blue investors investon immediate cash flow.” Nobody knows or can predict the future, not even thegurus. A good investment makes money for the investor on the Buy, not on the Sell.
Youshould prioritize cash flow over capital gains. Your immediate cash flow returnshould be at least on par or greater than current inflation rate. If you wishto, you should be able to buy a good investment property, hold for passive cashflow and never sell
3. You Can Make Millions Investing In Property
Anyonewho wants to sell you overnight success or wealth is not interested in your success;they are interested in your money. Enough of over-hyped marketing gimmicks fromseminar “gurus”! Unless you are a property developer who buys a piece of land, buildsand sells multiple units wholesale, you
canalmost never make millions by simply being an ordinary retail investor. It’s acomplete myth that one needs to make millions in property investment to become rich.As an ordinary investor, you don’t want to become a millionaire on paper; youwant enough passive income to get you out of the
ratrace. And you don’t have to buy multiple properties (it’s a bonus if you can)to retire wealthy. Just one or two grgenerating properties with reasonablereturns will be enough.
4. You Must Invest Constantly to Beat Inflation
Neverinvest for the sake of investing. Invest only because you want to, not becauseyou need to. Invest when the investment makes sense. If it doesn’t, don’tinvest! Billionaire Donald Trump says it clearly, “Sometimes your best investmentsare the ones you don’t make
I’mpersonally out of the Singapore property market for now (that’s why I’ve moretime to write articles like this). Currently, I‘ve cash sitting in the bankdeposits with low returns. Am I even concerned about inflation? No. Why waste yourmoney buying over- inflated assets with returns that barely beat the currentinflation rate?
It’ssafer for it to be in the bank (at least I know my money will be there) than torisk losing it.
Butwhen it’s time to buy, I’ll go in big time. Is it not risky, you might ask? Notif one is educated enough to see and ride on opportunities when presented.
Who’snaked when the tide turns? There are many today who are buying on hopes of capitalgains in a booming property market. Let’s see who stands naked when the tideturns. Smart investors know how to make money both ways, amateurs only duringboom times. Invest on common sense and logic. Invest with your head, not yourheart. Be a smart property investor.
Byguest contributor Gerald Tay, CEO and
ChiefTrainer at CREi Academy Group.