Top 1% of Investors

This pretty much sums it up for me and why being an active investor will make the difference.

How to be in the top 1% of investors

Like all forms of investing, property investing is fraught with uncertainty — but what can you do to be one of the most successful investors in Australia?

Blogger: Michael Fuller

… Have I bought in the best location? … Have I bought the right property? … Do I have the correct investment strategy? … Can I trust the property professionals advising me? … Should I act now or wait for the market to turn? ... Will the market turn? … Should I invest in shares instead or just sit on my savings? … Should I continue to hold or sell?

Picking the right location, the best investment property, and growing a successful property portfolio is tricky for even the seasoned investor. It’s no wonder less than one per cent of investors go on to purchase the six-plus properties the ATO says we need to retire financially well off. In fact, 7 out of every 10 investors only own one investment property … most of us reach our borrowing capacity quickly.

Property investing needn’t be daunting and subjective. In this two-part blog, I’ll show you how successful investors confidently take the guesswork out of their investment decisions.

In this first blog, you’ll discover how, like with most achievements in life, results are linked to action. Ask yourself, are you an ‘active’ or ‘passive’ investor? Is your strategy about ‘TIMING the market’ or ‘time IN the market’? You may think you are risk-averse — but if you employ a 'buy and hold' strategy in the wrong market, you may be putting it ALL at risk. Read on and I will explain.

The property investment game favours the smart and ‘active’ investor — one who makes decisions based on fact (not emotion); continually monitors the property market (especially the areas they invest in); can accurately assess investment opportunity and recycling costs; and closely monitors multiple sources of property data so they can respond with greater accuracy by selling under-performing investments and recycling their equity into better opportunities.

The ‘passive’ investor thinks property investing is all about time IN the market and so buys and holds, watching the world go by, making steady — but let’s face it — forgetful returns and often missing out on the best growth opportunities.

Now don’t confuse my use of the word ‘passive’ with those clever ‘Armchair’ (passive) investors who leverage other people’s time, experience or expertise to get ahead. They’re in a league of their own and understand the game better than most.

I’m referring to passive investors, those who pat themselves on the back for having just purchased an investment property (regardless of how they made the decision) … and then return to focus on the hustle and bustle of their everyday lives, forgetting (or consciously deciding not) to manage their investment closely.

The old mantra of ‘set and forget’ might have applied in days gone by when property market data was not freely available. The internet has changed this, and investors who understand statistical and fundamental research, where to get the property market stats, how to interpret them and what factors affect their strategies are playing a far more active game. The process for these active investors has only just begun at the point of purchase.

Forget about ‘buy and hold’ if you want to build relevant wealth

Sure, like the Lotto, you “have to be in it to win it”. The longer you have your money in the property market, the more wealth you will create due to compound growth. But sitting back waiting to benefit from slow and steady market-forced growth in the same suburb won’t see you sitting in the Bahamas in your retirement!

Growth in individual property markets usually happens in short spurts surrounded by rather long periods of little to no growth. There are 30,000 markets in Australia (that’s unit and house markets in 15,000 suburbs), and these markets don’t perform in the same way at the same time. Flat or even declining periods in a market represent missed opportunity — the bugbear of the serious active investor.

The passive ‘Buy and Hold’ strategy comes with significant risks if you don't keep your eye on your market and you find yourself in the position where you NEED to sell to release funds.

Life is too short to be passive, especially if you aren’t making the most of your equity — be it cash, access to a line-of-credit or money in your SMSF.

‘Active’ investors succeed because they continuously assess and ‘time the market’, pouncing on opportunity …

You can make the most of the short spurts in capital growth in different markets if you know how to time the market ... that is, when to buy and sell … and have the courage to release your lazy equity and act on new growth opportunities.

 

Isn't the key more than just being active? It's being able to know how to identify opportunities. Would you say it's quite possible that there are many who have spent a lot of time and money reading and learning (and taking action) but still are unable to get that skill? Problem with property is that learning by trial and error is very costly and can totally knock you out.

I wonder if many of the 1% are there because when they have made mistakes they were able to stay in the game and could kick on from there and continue learning and eventually succeed.

 

Surely the top 1% would be large commercial owners and not Debbie or Steve who own 7 medan rentals and retire on barely overy 100k net from them?

 

"It’s no wonder less than one per cent of investors go on to purchase the six-plus properties the ATO says we need to retire financially well off."

Yeah that sounds like ********.

1. Since when are the taxation office giving financial advice
2. property is an arbitrary metric. 6 shanties in the middle of nowhere provide a very different retirement to 6 inner city 7 or 8 figure value Sydney mansions. likewise we all have different ideas of what "financially well off" is. Some people would be more than happy with $50kpa after tax & a home paid off. Others couldn't maintain their current lifestyles on $150kpa and have far grander retirement plans.

 

Seems like he's reinterpreting the definition of "passive and active" investors. But good points regarding having to time the markets and regarding not just set and forget

 

@MTR this suits you fine but you are a rare breed and most could not emulate your success, I'd venture to say.

I have to strongly disagree.This is just BS.

I agree and have often said the same many times.

As I said on another (mining town) thread, most people are really bad at timing the market. I've seen many smart people lose heaps of cash in real estate by buying and selling. The transaction costs of doing so in Australia are too high and this cannibalises a significant part of their equity each time. Often what they purchase does not always perform as they expected. As the blogger says: even the experts and gurus get it wrong sometimes. Since that is a truism, what hope have John & Jane Citizen got of being this type of "active investor"?

Buy & Hold has made me personally and many others I know, a lot of money. I'm happy being in the top 10% without having to time the RE market like the share market

 

I'm biased because this is 100% my plan/strategy, but I don't get why anyone would even want to use property for crystal ball gazing. If you're a wizard who can see into the future, forex & commodities both offer more opportunity at lower buy/sell cost and more then enough leverage available to truly crank that risk dial to 11 if you want to..

I get "buy where you think its going to boom", but not planning on holding in what is clearly an illiquid, high transaction fee asset class just seems kinda stupid to me.

 

You make a very good point and I agree, we always going to make mistakes as long as we can continue and learn from this I guess that is what matters.... persistence.

Though some mistakes could wipe you out completely like those investors who purchased in mining towns hard to come back from this if you purchased 3+ and value has dropped off 50%+

 

Don't know, writer did not get into the nitty gritty ?

I think there was a post some years back perhaps on SS regarding sophisticated investors, whatever that is and of course asset class has nothing to do with this 1% criteria, but more to do with net worth.

I think the blogger is basically just pointing out that active investing will ultimately give you better results than buy and hold.

 

Exactly, and over the coming years as many of the hot markets come off the boil, flatten out and even fall, I think it'll be more important than ever to be an active investor. IMO it's the only way to keep my portfolio growing at good pace.

 

Totally with you on this one.
Don't want to be preaching doom and gloom, but booms do not last forever and always after boom comes bust.

 

I'd like to see a considerably successful, (say 10mil net worth), investor who got rich just by earning a decent salary and timed the market well in regards to investment properties.
I highly doubt you'll see anybody under say 50 years old who's done this without some type of other income source, like developing to sell or some other type of business income, etc.
Without a hgih income, your options are limited and you're at the mercy of the market.
So as far as I can see, all high level investors need a high source of income at some stage to get ahead, or get very lucky early on by going all in with perfect timing.

 

That is certainly true. Back in 1992, we had little to no idea what we were doing when we bought our first IP. We would not buy that same IP today as it does not meet our strict IP criteria. We have made a lot of mistakes over the last 24 years and hopefully we have learnt from some of them.

At least that first IP wasn't a totally disaster. We bought it for $125K, today we could sell it for $635K (that is, 7% compounding capital growth for 24 years) and it has nearly always been rented (current rent is 19% return on the purchase price).

I believe our Buy and Hold strategy has turned a mistake into an OK investment.

I only wished we made more mistakes like that back in 1992 .

 

I'd be happy to be in the top 50% of successful property investors

 

Quite so ....
The 1% they talk about are mum and dad investors who put the properties in their name.
The large investors would have their properties in companies.
These large investors would have seven shopping mall, industrial parks , shopping centres , office blocks , hotels etc
I suspect the top 1pc properties owners would have rental income over $100m pa

 

OK lets look at .......Global High Net Worth individuals.....

HNWIs are defined as those having investable assets of
1US$1 million or more, excluding primary residence, collectibles, consumables, and consumer durables.
² For the purpose of our analysis, we separate HNWIs into three distinct wealth bands: Those with US$1 million to US$5 million in investable wealth (millionaires next door); those with US$5 million to US$30 million (mid-tier millionaires); and those with US$30 million or more (ultra-HNWIs)

World Wealth Report | Compare the data on a global scale

Global HNWI Population and Wealth Expanded, but at a Slower Pace

While HNWI¹ wealth growth was a modest 4% in 2015, HNWI wealth continued to hit new record highs, aided especially by Asia-Pacific overtaking North America as the number one wealth market. Faltering growth in the Americas constrained global HNWI wealth expansion.

Japan and China emerged as engines of global growth, registering double-digit increases in HNWI population and ultra-HNWI wealth growth. Together, the two countries drove nearly 60% of global HNWI population growth. Brazil was the poorest performing country, losing 7.8% of its HNWI population and 5.9% of ultra-HNWI² wealth.

Ultra-HNWI wealth, long a driver of overall HNWI wealth, did not provide its usual boost in 2015. Dampened by Latin America, the global ultra-HNWI population expanded by just 4.2% and wealth by only 2.5%.
Excluding Latin America, however, ultra-HNWI wealth grew more than the other wealth segments, both in 2015 and over the past four years.

Global HNWI wealth is projected to nearly triple in size from 2006-2025 to surpass US$100 trillion by 2025, propelled by strong Asia-Pacific growth. If past growth rates hold, Asia-Pacific is likely to continue to be a dominant force over the next decade, representing two-fifths of the world’s HNWI wealth, more than that of Europe, Latin America, and the Middle East and Africa combined.

Video Gallery

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Largest HNWI Populations, 2015 (by Market)

Note: Chart numbers and quoted percentages may not add up due to rounding
Source: Capgemini Financial Services Analysis, 2016; World Wealth Report 2016, Capgemini

¹HNWIs are defined as those having investable assets of US$1 million or more, excluding primary residence, collectibles, consumables, and consumer durables.
² For the purpose of our analysis, we separate HNWIs into three distinct wealth bands: Those with US$1 million to US$5 million in investable wealth (millionaires next door); those with US$5 million to US$30 million (mid-tier millionaires); and those with US$30 million or more (ultra-HNWIs)

 

The guy who wrote the article doesn't also happen to be a fund manager does he? Sounds like their usual spiel:

'Invest with us, because the only way to get decent returns and beat the market is to invest in our actively managed fund! There's no other way to be retired and living in the Maldives by the age of 32!"

they say as they underperform the market and get beaten by simple index funds year in year out.

Not saying that you shouldn't take an interest in how your investments track; just that these people are (generally) full of ****.

 

one who makes decisions based on fact (not emotion); continually monitors the property market (especially the areas they invest in); can accurately assess investment opportunity and recycling costs; and closely monitors multiple sources of property data so they can respond with greater accuracy by selling under-performing investments and recycling their equity into better opportunities.

This is the gold at the end of the rainbow for me. The how is always missing...

This is what I need to learn.

Makes decisions based on facts - what facts are most relevant?
continually monitors the property market - monitor what and how do you interpret the changes?
can accurately assess investment opportunity and recycling costs - See above x 2.
closely monitors multiple sources of property data - What data, where do you get it? again, how do you interpret it?
etc.

 

Generally the only data that interests me is what I source from re agents once I identify an area that is moving. Volume, days on the market, supply, who is buying, what is selling and whether they are getting multiple offers
Moving forward I think late 2017 will be more challenging in Oz markets?

 

One can learn to be an accountant, solicitor, plumber etc. Personally what is harder is how to, as @MTR put it, learn to "identify the area that is moving" (or picking the right property) and knowing that you've identified it. Without experience, you can self-educate but you won't know if what you've learnt is correct. You can learn by doing but you risk an unrecoverable mistake. You can look for courses and you won't know the many bad ones from the rare good courses/seminar. The best approach is probably to learn from a mentor/genuine adviser that is successful and if you're lucky to find one, I'm guessing that is the path to success.

That explains why the property seminar/education business is so popular. Why buy a property to make a net gain of $200K (if you're lucky) in 12 months when all you need to do is sell your "learn to be a property investor" seminar program at $10K a pop to 20 or more people?