Only once one has the security of large reserves is one positioned to make appropriate investment decisions based on long-term viability rather than desperation. The latter is the ‘fear vs greed’ investor behaviour that fund managers always identify as the major reason for mis-timed investment decisions.
As to what to invest in, Corbett’s philosophy is diametrically opposed to that of almost all fund managers who preach diversification (and with it modest risk-adjusted returns). He suggests you choose a single asset class and turn yourself into an expert on it.
What’s your asset class of choice?
I am property-biased. It is the single asset class offering a geared return for which banks will lend 90% to 100% of the value.
What attracted you to property?
Your biggest cost – the bond repayment – is relatively fixed, while income escalates.
While I would not consider myself a true investor – like many entrepreneurs I invest everything into my business – I have built my wealth from the property industry.
What do you consider to be the common sense rules of buying?
- Listen to what people say, but always do your own research and make up your own mind.
- Always purchase with long-term growth potential in mind, as every time you sell you pay commission to an agent, transfer costs and duty. Try to keep property once the bond is paid off, as this is when it becomes profitable.
- Notwithstanding your long-term view, always have an exit strategy, by buying property only where you believe there will be lots of purchasers in the future.
- Buying property is an inflation hedge. The property price will escalate with inflation over time and the bond will devalue in real terms due to that same inflation.
- When purchasing, buy off-plan where possible. However, even if you trust the developer you need to do your own research to be sure the developer will deliver what it promises. Off-plan may give you a big kick in value as development approaches. In most of my estates there is normally a ‘kick’ of 30% to 35%.
- Never over-capitalise. Buy a cheap stand in an expensive area.
- When you invest, do so gradiently to manage the risk.
- Keep your first property until it breaks even and you no longer need to service the bond – then buy the next and so on.
If you follow these elementary rules, you will be able to get up to ten properties relatively quickly.