Do you have a "Dinner Party" portfolio?
Brett Alegre-WoodChairman, YPC Group
Hey guys,
When they're starting out, investors are inundated with opportunity. On websites. At tradeshows. In the mail. It's everywhere. Cyprus, Croatia, Spain, Florida, Estonia, Las Vegas, Bulgaria, Thailand, Germany, Goa, France, Hungary, UK and so many more. It's a candy store for the budding property investor with so many outstanding opportunities to choose from.
The experienced professional investor knows that most of the countries are simply distractions or ways to easily line the pockets of salespeople... and to lose money.
Let me introduce one of my investors -- 'Tina'. She has an awesome 'dinner party' portfolio, meaning that around the dinner table she can hold her own with the best of them.
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She owns a great place in France on a 17 year leaseback, a wonderful Spanish apartment only 10 mins from the beach, a main street apartment in Auckland, New Zealand, an off plan Dubai apartment, a Bulgarian ski chateau, a Northern Cyprus apartment to die for with views of the Mediterranean from the bedroom, an apartment in central Berlin (that's on the infamous east side only minutes from Alexanderplautz). She also has 3 apartments and her own home in the UK.
After I met with her, it was obvious that her investment strategy consisted of buying whatever sounded good. In fact, she was blissfully unaware of the fact that her portfolio was a ticking time bomb.
Tina was in:
8 different property markets, with
7 different languages, and
8 different property laws, and
10 different letting agents, and
8 different market cycles.
If that wasn't enough she needs to understand the mortgage products of 8 different countries so she can access her equity as well as 8 different taxation laws. Are you starting to get the picture?
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I have always loved Warren Buffet's investing ethos, especially his opinion on diversification:
'Diversification is protection against ignorance... It makes very little sense if you know what you are doing.'
You see I have always been a fundamentals investor. One of the things about fundamentals is that once you understand a market and begin making money in it you simply keep doing it, you DO NOT think well I made some money, so what's the next challenge? You persist, you build systems to make it easier for you to make money, you build better relationships and as a result you make more money, easier.
That's the essence of my 'Set and Forget' philosophy
The only time you even consider going into a different market is once you have built a solid foundation in the first. That's what being a fundamentals investor means.
You see Tina had bought one property everywhere without any fundamentals, she never cared about questions like:
when my French property goes up in value over the 17 years how to I take the equity out?
When I try and sell my Bulgarian property once they join the EU who will buy it?
How much capital gains will I pay?
How many inner city Auckland flats are coming online at the same time as my flat?
Who will either buy or rent my Dubai flat once it's ready in 12 months?
It's questions like these Tina had no idea how to answer. She had simply been attracted to the initial deal. This is one of the best ways to be assured of losing money.
Property investment is a small part buying and a big part holding. Don't think that just because you got a good deal on the purchase that it is a good deal. You need to consider the holding, the re-mortgaging, and the disposing. Only then can you truly say it's a good deal.
Live with passion,
Brett Wood
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