Million Dollar Lesson “Market Correction is Temporary and Growth is Permanent”
During my innocent days (2007-2011), I had the privilege to meet a person (multi-millionaire with 60 plus properties). He used to charge 300 dollars per hour, and I had a number of paid one-on-ones with him.
Want to share some takeaways from those sessions: –
- Innocently I used to tell him that in my opinion, when the property boom happens, good areas like Epping, Strathfield, Carlingford, and Chatswood only grow in price because they have good schools and are close to the city. He used to say that when a boom happens, everything grows, regional grows, Penrith grows, Riverstone grows, Melbourne grows. Of course, the growth will be different for different areas but everything grows. As long as your cost price is less, u have a property in which u can add value and u have a proper exit strategy, u will do good. So he pointed out that instead of buying 1 million property in good suburb and then hoping for it to double, you should buy low, may be 300k property in three different places at the right time just before the boom.
- Have a mix-and-match strategy. So if u buy a negatively geared house with hopes of capital gains(type1), buy along with a positively geared property with no hope of capital gain(type2). This is very important to understand, and many people have got it wrong. My friend named Ramesh only buy type 1 property (750k 4 bedders good house in Quaker hills) and quickly exhausts his borrowing capacity. He now waits and hopes for capital gains in the future while losing money on negative gearing. My friend Suresh only buys in the outskirts of Brisbane type2 (250k apartment in north lakes) properties. He can buy 5 or 6 of them with his borrowing power but he does not know why he is not moving forward in life despite having 6 properties. The world is divided into Ramesh and Suresh. The right strategy is to mix it up. Buy type1 property and on the same day buy type2. Positive rental from type 2 will cancel out negative rental from type 1. With time type 1 will grow. Sell it and pay off type 2 and have an income stream for generations.
- Timing is very important, 90% of people in the world are google driven. That is why u have only 1% of people in Australia with 5 plus properties. People buy when google says it is the right time to buy. That is why you will see loads of people now caught unawares with land in Marsden park, NSW, Tarneit/Werribee/Wyndham vale in Melbourne. These all people bought at the peak and now are sitting with negative equity (with just land and no house on it). Buy when google says that the property market is going to crash by 40%. That is the right time to buy.
- Risk planning, No one of us has a crystal ball. I was amazed to see 1000 people standing in front of the stall of an Indian fortune teller at the Diwali mela event. NO ONE CAN PREDICT THE FUTURE. U have to have a ‘what if’ risk planning excel sheet ready. It should have points in it, what if X happens, what if Y happens, what if Z happens? And then you should write what will u do if X or Y or Z happens or a combination of them happens. This is how major projects in big companies get delivered. U need to have a risk register and a risk mitigation strategy and risk contingency planning. You cannot fail in life if u have a risk-planning document.
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- Plan for your bad days, if the market downturns have a property where u can add value. For example, if u are struggling to pay for the negatively geared property. Add a granny to it and manage our cash flow. Do some Renos and increase the rental.
- Buy below the median price of the suburb.
- Be aware of the ripple effect. This is very important. I have seen this in front of my eyes. When we migrated in 2007, Strathfield was the hot suburb. And people used to say that don’t go to Blacktown as u will be stabbed in daylight. We have seen a ripple effect of the growth traveling Strathfield/Homebush west/Granville/Parra/Westmead/Wentworthville/Pendly/Toongy/Blacktown and it is just unstoppable.
- When a train station comes, the suburbs in its diameter grows. Take the example of Epping. All suburbs in their diameter grew. Parramatta the whole diameter in all 4 corners grew. Next will be diameter growth in the new train line. Cherry/Castly/Bella/Kelly/Rousehill. U will see the diameter of these suburbs growing. For example, box hill is the diameter of rouse hill. Marsden Park will grow more when the extension train line is announced and so on and so forth.
- It is all about demand and supply. The house will get sold when the demand and supply graphs will match. If you want to google something today, please google and read about “Demand and Supply graphs and the theory behind it”.
- The most important takeaway was “Price rise is permanent while the market correction is temporary”. People who understand this simple statement are in the 1% top property moguls quadrant in Australia. Pick any suburb in Sydney, prices almost doubled in value between the 2013 to 2017 boom. For example, a house that was 550K became 1.1M. Now the market correction is happening and says that it falls down by 10%. Still, it is 990K, which is still 180% of its original price.
- So “price rise is permanent while the market correction is temporary”.
- With these thoughts, I will leave you to enjoy the beautiful easter break. Pls spend time with your family and friends, enjoy life. Take out 10 mins during the next 10 days to talk with your spouse about your finances and how u plan to retire. Pls, talk to them about how the govt will not give you a pension or any support when you will retire at the age of 65. Pls, mention to your spouse that shows the govt gives tax breaks and how it helps and wants u to plan your life between ages 40 to 65 and how govt do not want you to rely on it after age 65. There is minimum(read ‘no’) support by govt after the age of 65 for people who have owner-occupied homes. Tell them why it is important to plan for your retirement. Tell your spouse not to assume that you will keep working like this up to the age of 65. Hold their hand and tell them that you both are growing old and the energy u had at the age of 30, you don’t have at age 40. Tell them that u need to set up a plan for retirement and sort out the finances as the time is running out. We will always be busy and we will never have time. But the least we can do is to ponder and spend 10 mins in the next 10 days to talk about our retirement planning with our spouse.
I leave u with these thoughts. Happy Easter.
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Disclaimer: Articles in this blog are just the author’s or authors’ personal opinions.
It may or may not be correct. Please do your own due diligence and seek professional advice according to your own personal circumstances. The author or authors cannot be held responsible/liable for any content in this blog.
