Most investors are trying to sell, so jump in and get property at discount prices

They say you shouldn’t invest in something unless you are passionate about it and able to take the time to understand the investment and to nurture and monitor it to identify an opportune time to divest or increase. The alternative, I guess, is to find an expert who will invest your money for you. I am, however, a firm believer that no one else can manage your investment better than you can… but that discussion is for another day.

My interest and passion has always been in property – it is a hedge against inflation, a source of annuity income if you make the right investment and, unlike most assets like shares and bonds, banks are usually willing to lend you most of the purchase consideration (although these days, given the global financial crisis and the level of bad debts banks are exposed to, that is not always the case).

There are lessons I have learnt over the years (and in most cases the hard way) that, particularly with the downturn in the global economy, I think are worth sharing.
Firstly, buy property in areas where the rental yield is high and the rental you receive is higher than your mortgage bond repayment. Easier said than done, I agree, but it is not an asset if you are not making income from it. As Robert Kiyosaki, author of Rich Dad, Poor Dad says, do not buy property in the hope of getting capital growth in the future – buy property when it is selling at a discount to market value or when the rental you will get is greater than the mortgage payment you have to make. What this means is that we should be buying property now, when most investors are trying to sell because they are overcommitted and are therefore likely to sell at a bargain and not, as most of us did, in the last few years when property prices were inflated.
Secondly, when you invest, remember that property is an illiquid asset. It is difficult to sell and, at the best of times, takes a long time to transfer (about three to six months) when a sale has taken place. The difficulty of selling a property for fair value is significantly more in a downturn such as the one we are experiencing now, as a lot of over-exposed people are trying to do the same thing and there is a general aversion to making such large investments. The lesson therefore is: ensure you do not over-expose yourself and that you have enough cash or liquid investments available to tide you over during the tough times.
Lastly, property is a long term investment and if you have made a fundamentally sound investment decision, hold on during the inevitable swings in the economy and it should pay off handsomely.

I cannot however over-emphasise the need to diversify your investment portfolio and therefore, even if property is “your thing”, it is prudent to have a mix of property, shares, bonds and cash in your portfolio. As the saying goes, do not put all your eggs in one basket.