Dear Property Investors
“Learning is the beginning of wealth. Learning is the beginning of health. Learning is the beginning of spirituality. Searching and learning is where the miracle process all begins.” Jim Rohn
2011 is but a memory. It was an amazing year, full of opportunity and challenges. However everything has to be taken into context as we move forward into 2012. The definition of stupidity is, “there is no problem with making a mistake, it is when you make the same mistake again and don’t learn from it, that is stupidity.”
For this reason, Scott Picken, IPS CEO wanted to share with you his top 10 lessons from 2011 in property:
Income – Once again this is the most important lesson of the year. Wise investors focus on income only when investing. If you buy the right property, the capital growth will come with time, but if you focus on income, then it will provide you with the balance to ensure that whatever happens in the market you can ride the wave. From the biggest property funds in the world to individual investors, when they focus on capital growth, they crumble when the market turns. Only invest in property with secure rental demand and you can join the really successful investors who make the most money in these troubled times.
Bad developers – according to research 93% of people are dissatisfied with what they buy from developers. I invested with one of the top (not anymore) developers in Cape Town and the product they handed over they should be ashamed of. They own none of the units themselves (always a massive sign) and they blame everything on maintenance, except the building is falling apart after only 2 years. The beauty is though that these developers’ days are numbered. They launched another development this year and the problem is the public is none the wiser as they have another nice marketing budget and they sell to more unsuspecting clients. This is going to stop very soon. With the internet, social media and social proofing your track record will follow you and they won’t be able to get away with it. Personally I am taking them to the NHRBC, but even if that doesn’t work, social media will be their downfall, if they and other developers don’t up their game, have pride in what they deliver and provide quality after sales service. In 2012 we will be launching Property Watch Dog and so watch this space.
Body Corporates & Estate Managers – in one of our developments we have a big problem with the tenant mix and it was affecting the whole development with badly behaved tenants and little control. We brought in an estate manager from JHB who is really tough and takes no sh*t and in less than 6 months he has turned that development around.
Offplan developments overseas – one has to be very careful when investing overseas as more than 80% of people lose money. This year we experienced a massive problem with clients who bought off-plan in 2008 and 2009. At the time we assisted them with mortgage brokers and they were given assurances of being able to get finance, based on the current criteria. However the problem in the UK and Australia is you can only get final finance approval 6 months prior to transfers (handover / settlement) and if you don’t get finance you lose your 10% deposit. Therefore with a development transferring this year, and the banks having completely changed their lending criteria, it provided a nightmare. I do believe in business though it is not what you do when things are going well, it is what you do when they go wrong. We did everything in our power, including extensive negotiations with the developers and getting finance through banks like the Bank of Nigeria and Bank of Cyprus. After 6 months of hell and frustration for the clients, we eventually managed to help 23 out of 30 clients get finance. Due to this experience and never going to be able to control what the banks will do in 2 years time, we have updated our report for investing offshore to “The 6 things you have to know before you invest offshore!” and changed our strategy to mitigate this risk. If you would like a copy, email scott@ipsinvest.com
Following the market – allot of people get caught up in the hype of whether the market is going up or down. Bottom line is it is not about this, but about the individual opportunities and whether they make great investments. As the Chinese say, there is plenty of opportunity amongst chaos, but you have to have the skills, strategies and tools to determine a great investment. In 2012 we will be providing courses on how to do this.
Auction property – although there is allot of talk about auction property and how much value you can get there, it is very difficult process and you have to know what you are doing. I was at an auction with a friend who bought a property and he thought it was an absolute bargain until he went there the next day and he saw hundreds of ‘to let’ and ‘for sale’ boards. I am not going to regale you with hundreds of horror stories, but having dealt with this for more than 18 months now, you need to understand it is very intricate process, the banks are generally very disorganised, it is very frustrating and fraught with problems. For this reason we will be launching a course in 2012 about “How to buy auction property” as there are great opportunities if you know what you are doing.
Rand Devaluation – we had a number of clients invest overseas in the last 3 years. Although the clients who have invested in Australia have seen great capital growth, the ones in London have seen prices go fairly sideways. They are getting good cash flow positive yields, but the bonus is that the Rand over time consistently devalues and for this reason they have seen above average returns on their Rand investment.
Deal behind the deal – in negotiating the purchase of Student Accommodation in Sydney worth $34 million, I worked with two of my partners and friends. The one is worth hundreds of millions and the other a billionaire and all made in property. What seemed like a simple transaction, they thought out the box and completely restructured the deal, to more than double the returns. People without the skills would have bought the same property and got half the returns.
Be prepared to walk away – on the same deal, we actually walked away in the end. Even though we all agreed it was the best investment opportunity we had found in Australia in 4 years, we could not get the seller to agree to our terms and so we walked away. Bottom line is that successful and wealthy investors walk away, unless they are getting the right returns on their capital.
Indecision – I have found this year that people are very concerned about what is happening in South Africa, but they are equally concerned about what is happening in the global markets. Because of this they have analysis paralysis and have done nothing. This is not necessarily a bad thing, but as Warren Buffet says, “Be fearful when others are greedy and greedy when others are fearful.”
As it is the festive season I wanted to give you a gift. Please click here to download “Think and Grow Rich” by Napoleon Hill. This book was written in 1937 and has been the cause of more millionaires than any other book ever written. I listened to this book a third time when I ran comrades this year and if you apply the principles, you can literally create all the wealth you want in your life!
In conclusion, the 21st century is all about knowledge and wisdom. Sandra Carey said, “Never mistake knowledge for wisdom. One helps you make a living; the other helps you make a life” In 2012 IPS is going to go even further in providing you with wisdom and we have a number of online courses we will be launching in the new year and so watch out of them.
Here’s to 2012 and turning it into your best year yet!
Thanks
Scott Picken
IPS CEO