The property boom is back and so are the spruikers

This year has truly been an emotional rollercoaster for property investors hasn’t it? Ups, downs and everything in between.

It has also been the year that proved some people right… and others wrong. Remember all those terrifying headlines earlier this year? It was not that long ago that all those so-called “experts” told us property values would drop through the floor. Others told us to sell up our properties and still others said it was the end of capitalism, as we know it. So, did all the scary headlines come true? Did the world come to an end?

Obviously not.

Just like the other economic downturns and recessions I’ve experienced before, they feel terrible when you’re in them and even worse when you can’t see the end. But when the clouds lift those who had a sound investment strategy and understood the fundamentals of economic and property cycles ended up in a financially sound position.

By the way, did you notice how the downturn weeded out two distinct groups of people?

Firstly, and unfortunately, a large number of investors disappeared. Especially those who invested in shares who exited as the values of their portfolios collapsed and they couldn’t handle the margin calls.

But also many property investors had to sell up. And that is particularly disappointing as, while some properties fell in value, most didn’t fall in value “that much” and most have made up all the lost ground plus more.

Why did those property investors sell up?

Well… some were given bad advice and sold up for the wrong reasons. Others sold up because they had over leveraged themselves or got involved in the wrong type of loan (maybe once again based on poor advice). Yet others had bought the wrong type of property (often based on emotion rather than research) and found its value fell significantly.

For other investors their hunger for a quick return took them into exotic terrain. They forgot the fundamentals of buying well located property at the right stage of the property cycle and ventured into things like property options or buying off the plan, usually to their detriment.

I remember reading Warren Buffett’s advice: “Never invest in something you don’t understand”.

So one group that disappeared over the last 18 months were inexperienced or ill informed investors or those that did not have a sound property investment strategy. Many of these people thought they were investing, when in fact they were speculating… you know what I mean… they bought a property and hoped or prayed it would go up in value, rather than sticking to tried and proven investment principles.

No one ever said property investment was easy (or if they did they were lying to you), but if you are one of those who had a sound strategy and stuck through the last 18 months or so, you are likely to be way ahead – so congratulations!

Another group that disappeared were many of the self-styled “property gurus”. Those who looked smart during the property boom and led many inexperienced investors astray (remember: a rising tide lifts all ships). Here’s another Warren Buffett quote I would like to share with you: “Only when the tide goes out do you discover who’s been swimming naked”.

Unfortunately the new property cycle is bringing out a fresh group of “property pretenders”.

A recent article in The Age warns of the new swarm of “property spruikers” and an article by Paul Clitheroe in this month’s Money magazine warns investors of the risks associated with the investment schemes that pop up and rip off innocent Australians.

The Age article suggest that property spruikers could be considered a bellwether for how the market is travelling, explaining that those spruikers who went quiet during the real estate downturn that began in early 2008 are now making a comeback.

However, the article also remind us that seminars that promise easy wealth through property have all too often led to financial ruin, citing the Henry Kaye empire six years ago as a reminder that aspirational investors need to be careful.

First-time investors may not remember the devastation caused to 13,000 consumers who lost up to $60 million after attending Mr Kaye’s seminars.

Now the dictionary definition of a “spruiker” is an orator or someone who gives a speech especially extensively, so I must admit I fall into this category. I have been conducting educational seminars for over 10 years and have probably educated more successful property investors in Australia than anyone else. But I don’t have any properties for sale at the back of the room and I’m not paid to make a particular property developer’s project look favourable.

Sure I sell our services but they are independent and unbiased – and that’s an important differentiating factor… if you are gong to listen to someone’s advice make sure it is unbiased and not self-serving.

Be even more cautious if people are willing to offer advice for free and if it sounds to good to be true it most likely is. This was the case with Estate Mortgage and Pyramid Building Society (who promised investors a higher return than other institutions) as well as Fincorp and Westpoint.

As I wandered around the Sydney Home Buyers and Property Investment Expo a few weekends ago I came across some genuine, independent and experienced property educators out there, and in general they are members of P.I.P.A. (Property Investment Professionals of Australia) (by the way Metropole are foundation members). But I also came across a new breed of property marketers with glossy brochures and very impressive stories, who were spinning their tales to the next round of inexperienced investors.

Yes…the cycle moves on.

So what can we can learn from what happened over the last property cycle? Or we will be doomed to repeat it?

My suggestion is to educate yourself and become financially fluent. This will allow you to be in control of your own financial destiny. Of course, this doesn’t mean you do it on your own.

To become a successful investor you will need to surround yourself with a team of independent and unbiased professionals – a team of people who are known, proven and trusted.

Then go ahead and take advantage of the new property cycle.

Michael Yardney is the director of Metropole Property Strategists, a best selling author and one of Australia’s leading experts in wealth creation through property. For more information about Michael visit www.metropole.com.au and www.PropertyUpdate.com.au.