Property investor traps: Insight from wealth creation expert Michael Yardney

At EBM RentCover, we want to make sure our landlord clients are armed with the knowledge needed to best protect what is important – their investments and incomes.

So, we chatted to one of Australia’s leading property and wealth creation experts about what makes a successful investor. Michael Yardney – Director of the Metropole Group of Companies – shares what not to do when it comes to property investment. And, he gives insight into the traits of a good investor and chats about the importance of protecting assets with insurance...

Michael just turned 68, however he doesn’t appear to be slowing down any time soon… in fact, with more than 50 years’ experience in property investment and development, here is hoping he continues offering advice and guidance to budding investors and never throws in the towel!

Let’s start at the beginning… Michael bought his first investment property in his early 20s, with a $2,000 deposit and little-to-no understanding of how the real estate market worked. Today, he has a multi-million-dollar property portfolio (one he manages in his spare time) and is the founder of Metropole Properties – a company that gives clients strategic property advice and has reportedly bought, sold, financed, developed, advised and project managed more than $3 billion worth of property transactions.

So, where did this passion for property stem from?

Michael moved to Australia at the age of three. His parents were immigrants and worked hard. But it was the friends of his parents – the wealthy ones who had investments and high incomes – that inspired Michael to learn the tricks of the trade when it comes to property.

“I discovered that a lot of the wealth of my parents’ friends was made through property and at a very early age I decided I wanted to replicate that wealth through property for myself,” he says.

“I bought my first investment property in the early 70s in Melbourne, paid $18,000 for it and got $12 a week rent which I was excited about. But I made many of the mistakes a lot of first-time property investors make and made emotional decisions like buying close to home and without doing much research.”

Michael says it wasn’t until he started making decisions based on logic and fact that he realised the true value of property and how to make the most out of property investment.

Let’s talk more about the mistakes first time property investors make… Michael says there are four big mistakes first time property investors make:

They are undereducated

One of the biggest mistakes investors make is they do not educate themselves.

“There are 25 million property experts in Australia because everyone who has lived in a house or rented a property thinks they know about the real estate industry,” Michael says.

“But that doesn’t give them the experience or depth of knowledge to go out there and be a successful investor.”

Research shows 50 per cent of people who buy investment properties fail in the first five years because they sell up their properties. And, interestingly, of those who stay in the market, most do not get past their first investment property.

“One of the biggest risks in property investment is not the property, it is the undereducated investor.”

They are emotional

Even if they are well educated in property matters, some people still tend to buy emotionally.

“While we think we are rational, we do not act rationally because there is this fear of missing out,” Michael says. “People will still overpay, despite being informed and educated about what is the best long-term decision.”

They are greedy and impatient

Michael says property investment is a long-term process – not a single event.

“Yet many beginning investors find a property they fall in love with and then do some homework and research to confirm the decision they’ve already made,” he says.

“On the other hand, strategic investors start by formulating a long-term investment plan, getting the right finance in place, setting up the right ownership structures and building a team of independent advisors around them.”

“It is understandable that people want to get rich quick. They see others doing well and want to replicate it, but they try to get rich quick.”

“Residential real estate is a high growth, relatively low yield investment; it usually takes 25-30 years to become financially independent through property. So instead of making rash decisions, you need to know what you are looking for and understand the objectives behind it; the why.”

They are naïve

Nowadays there are a bunch of people trying to sell you something and take advantage of naïve investors. They say things like: ‘this is going to be the next hotspot’ or ‘you are going to get guaranteed growth’.

“The property investment industry is still unregulated – that is something that needs to change because people take advantage of naïve investors,” says Michael.

Now we know what not to do, what are the traits of a good property investor?...

Michael says one of the foundations of a good property investor is to have financial discipline and that means delayed gratification.

“You need to have a long-term view of where you want to head and what you want to do,” he says. “And then forgo some things today to give you some comfort in your golden years. This means spending less than you earn, saving the balance, building up a deposit and then buying appreciating assets.”

“If you do the hard things in life now, life will be easier in the future. However, if you do the easy things, your life will be harder in the future.”

He adds that while investors need to have a big-picture view, they also need to understand the science of property investment.

“The truth is not all properties are worthy of investment,” he says. “So, investors need to be able to do the research or outsource this to someone who is specialised in this area.” 

“I don’t invest in what works now, at this stage of the cycle or the next year, I invest in what has always worked and that way I do not get caught in the ups and downs.”

At EBM RentCover, we think investors who understand the importance of insurance are a step ahead… does Michael agree?

Michael says one of the great benefits of residential real estate is that you can insure against a whole lot of risks so it makes it safer than investing in shares or in business.

“You can insure your property, your tenants, and even your income earning capacity that is generated through property,” he says

“Because your property is going to be your biggest asset over the next 20-30 years, insurance is very important and is one of the things that make residential real estate a safer investment.”

“And like your property, insurance is not a cost or expense; it is an investment. You would be silly not to think about insurance.”

True story…

Many years ago, Michael’s parents owned an investment property in Elsternwick in Victoria. They didn’t use a managing agent because they thought they could look after the property and it would be cheaper. They also didn’t take out insurance.

The tenants had a perfect record of paying rent on time so no inspections were held. Michael’s parents thought they had won the tenant lottery. However, things started to get dark…

When the tenants eventually moved out, it turned out they had painted the whole inside of the property black.

The end result was the landlords had to repaint the whole property. And, because it was black, it didn’t take one or two paints of coat. It cost a fortune!

Had they took out the right insurance, they may have been able to recoup the costs for the damage. Under EBM RentCover policies, Michael’s parents would have been able to claim up to $65,000 under accidental tenant damage.

What does Michael think about EBM RentCover…

Metropole manages more than $2 billion worth of assets for clients.

Unfortunately, because there are a number of things that can go wrong, the business must work with a number of insurers, brokers, agencies and companies to best protect the investments.

“Having the right wording in a policy is important, but most important is the service that comes with it,” says Michael.

“That is why we work with EBM RentCover, because they do the right thing by our clients when we have to make a claim. This is much more important than any wording in a policy – we actually know that EBM RentCover has the back our clients.”

For more info about Michael and to find more property investment tips, visit the Property Update blog.