You cannot be average

BY MARY HOLM

Q: I'm a new property investor. I have been studying the figures and it has shown me that with property investment, while it is easy to get into, it is actually quite hard to get right. If you get it right, it is a great investment.

In response to an email, you said, "But I am saying that the average person who concentrates on housing won't do as well".

It seems to me that the pivotal word in that statement is "average".

I agree that the average property investor won't do as well as someone who diversifies, so don't be average.

Be a great property investor. How, you ask?

Well, for starters, learn from the people who are great and who get it right; do lots of research on the market area you are investing in; get yourself some investor rules that work and you stick to; know your numbers and if a property doesn't meet them, keep looking.

At the end of the day it's your money you lose if you don't know more than the average investor.

So why be average?

In the property market, as opposed to the share market, you're probably right.

If you put a lot of time and energy into learning about property, you're quite likely to do better than those who don't.

That's partly because you're not investing alongside big financial institutions. In the share market, those institutions will usually beat individual investors at finding bargains.

By the time Joe or Joanne Blow gets there, the price has been pushed up.

It's not at all clear, therefore, that an individual who spends hours investigating shares will do better than one who simply buys into a share fund.

Property is different in that respect. Also, each property is unique.

You might be one of only a few people who know about it, whereas many people know about the companies listed on the Stock Exchange.

A few notes of caution, though.

The people who are great and who "get it right" tend to be among those who have taken some pretty big risks with property, generally by borrowing extensively and gearing up. In any such group, some will do really well and others will do really badly.

We usually hear only from the former.

In a recent Herald article, Anne Gibson quoted successful property investor Dolf de Roos as saying "rich people all made their money, or held their wealth, in real estate".

I suggest that if you checked out retired people with little savings, there would also be more than a few who got into highly geared real estate.

As another reader put it: "If an investor sticks all his investment eggs in one basket, the return had better be good, because risk goes up.

"If the investor borrows as well, the return will need to be ever greater, as risk has increased again.

"Put simply, if someone wants to be super rich, one way to get there is to borrow heaps, invest in one asset or asset class (property or shares - it doesn't matter) and wait for growth.

"The downside is, if it goes wrong, expect to be bankrupted. Never mind. After release from bankruptcy constraints, the investor can try again. (a.k.a. America - the land of opportunity)."

The wise reader continues, "If the objective is to protect existing capital and achieve more modest growth, don't borrow, and diversify investments across property, shares and fixed interest.

"This means little risk of either being bankrupt or super rich."

Another important point: time and energy aren't free. To operate the way you're suggesting would amount to taking a part-time or perhaps even a full-time job.

I would hope you get above-average results after all that effort.

* Mary Holm is a freelance journalist and author of Investing Made Simple. Send questions for her to Money Matters, Business Herald, PO Box 32, Auckland; or email maryh@pl.net. Letters should not exceed 200 words. We won't publish your name, but please provide it and a (preferably daytime) phone number. Sorry, but Mary cannot answer all questions, correspond directly with readers, or give financial advice outside the column.