By Don R. Campbell
It’s 2016 - a new fresh year, a clean slate, a time for renewal and excitement. It’s a year when new goals are in place and new positive outlooks are to be had. Wow, it feels great. It’s “Goodbye!” to all of the messy change that occurred in 2015 and “Hello!” to a whole new clearer 2016!
Sure, a positive mindset is important. In fact, it can be the difference to being successful in the long-term or sitting on the sidelines in fear. However, just as important is being pragmatic and employing strategic thinking. That is why while entering this new year of real estate investing opportunities it is important that we keep a sense of realism. Why? Because realism allows us to ensure we are not missing critical signals and signs. Realism pushes us to continually improve and adjust our views and strategies. Realism forces us to get out of our emotions and keep a close eye on the fundamentals. By combining a positive sense of excitement with a strategic point of view, you can win in any market conditions.
In times like these, it seems that change is constant. In fact, just think of the confusion brought to a non-strategic, non-pragmatic investor’s radar by lower oil prices, the dropping dollar, rising world violence, political and government policy changes, interest rate shifts, automotive industry moves, and high real estate prices. As if that wasn’t enough to scare people to the sidelines, you can multiply its effect 10 times by the advent of social media.
The key words in the above paragraph are non-strategic and non-pragmatic. It is true that today it seems to be harder than ever not to be drawn into the emotions that all of this change brings. Think of all of the change and head-shaking occurrences that occurred in 2015, all of which were unpredictable at the exciting start to last year.
Each of these changes brought stronger and stronger emotions. Many of these changes pushed people to the sidelines, causing them to give up on their long-term financial goals as they sat frozen in confusion and fear. Many investors don’t adapt their thinking or their strategies as markets and trends change which leaves them wondering, “Why is life more of a struggle today than it used to be?”
During that EXACT same time, with the exact same data and witnessing the exact same change, the strategic investors began to shift their approach and strategy. Many became more hands-on in the management of their properties, while others saw the confusion as a time for action in building their portfolio. From Halifax to Victoria and all stops in between, the market shifts created winners and losers. The difference between them often was their ability to filter out the noise and adjust only based on the reality. 2016 will be no different; there will be lots of change, confusion and mixed signals.
Here are a few steps to ensure you are staying out of the non-strategic trap:
Research Proves Its Worth
The market shifts and dramatic changes that we witnessed in 2015 really brought the importance of unbiased research to the forefront. Quality forward-looking research in the hands of a strategic investor has proven to be like holding the key to the proverbial vault.
Anyone can buy property and make money in a hot market. However, when the waters get roiled and the fog of confusion rolls in, it is always the portfolio designed on a foundation of research and analysis that stays the most stable. As we enter 2016, this is going to be even more important than ever before as we are witnessing a sea-change in the overall market demographic.
We have the emergence of the Millennial buyer and renter that is just going to start being felt in late 2016 and will run for decades. Do NOT ignore the research we have been publishing on this change. If you do, the changing winds will drive your portfolio into the rocks.
A second piece of research an investor cannot afford to ignore is the detailed research we have spoken about regarding infrastructure, especially transportation infrastructure. This is doubly important now because of two factors:
- The new Federal Government has promised to provide a substantial amount of funds to support the design and build of new rapid transit lines. These funds will increase the rate at which this critical infrastructure is built and therefore increase the rate it will affect strategic real estate portfolios.
- The demand, by the above mentioned Millennials, for rentals and purchases with access to transit lines will be increasing at an even more rapid rate than previously forecast. Higher demand equals higher rents and prices as well as eventual higher density. In other words, a winning formula for the investor.
Both of these above pieces of research we have spoken about a lot in the past but during the good times in hot markets, many non-strategic investors ignore it, or even get tired of hearing about it. However, when confusion, emotions and economic turmoil hits, building a portfolio based on these two research pieces will prove to be the life-saver for your portfolio, giving you a strong upside in a hot market, and reducing your downside when markets slow.
Keep Perspective - Don’t Drink Your Own Kool-Aid
It is human nature, and quite financially dangerous to be blind to our own blinders, or as some would call it “Drinking Your Own Kool-Aid.” Whether you are of the belief that the market is over-priced or you think it holds a lot of value, it is critically important to question that belief with unbiased facts.
One of the key strategies I have adopted in building my real estate portfolio, as well as my businesses, is to continually challenge my beliefs. By doing so, I can uncover any holes in my plan. I also gain new perspective, absorb new information that makes me better, and most importantly I never end up in a “blind alley” because I closed my eyes and ears to reality.
For instance, there is a group of people who have been forecasting a large and dramatic drop in Canadian housing market prices and they have been doing so since 2006. So, based on their views and a tendency to head to sources that support that view, many have missed out on one of the longest and strongest market increases in history. The funny thing is, behind the scenes, some of the leaders of this group have quietly bought real estate (but that is a story for another day).
The same goes on the opposite side of the equation. There are those who think that real estate is the one and only investment on the planet and always increases in price and demand. These people, as well, search out information and data that only supports this view.
No matter where you sit in this discussion, you are wired to have biases. Our own biases can be quite dangerous and financially draining if we don’t work hard to test them. There are hundreds and hundreds of studies on how the human brain is wired for bias and why you find satisfaction when you find information that supports your bias. Each bias has its own name and its own reason for existence. In all cases, biases help us make quick decisions and feel good about them - even if they are not accurate and based in fact.
Some of the biases that a high majority of investors are affected by are: Recency Bias, Hindsight Bias, Framing Effect, Availability Bias, Confirmation Bias, and the list goes on with each one adding risk to your portfolio.
Challenge. Absorb. Adjust.
My research shows that the most successful investors (and frankly the most successful in all aspects of life) analyze situations/investments/philosophies/beliefs from many points of view. They always challenge their assumptions, always looking for holes in their position. In fact many, if put to the test, could debate either side of an investment argument.
Challenge. Absorb. Adjust. Those are watchwords I urge you to have as your screensaver, or printed out and hanging in your office throughout 2016. If you adopt that philosophy, then you begin to problem solve easier, to see opportunity where others can’t, and at the end of the day dramatically reduce anxiety when the unpredictable changes and challenges come while enhancing your overall view of life.
To me that sounds like a winning combination of positive outlook with a dose of realism. It’s just what the financial doctor ordered for 2016 and beyond.
Don R. Campbell began his investing career in 1985 with a house purchased in Mission, BC. He is Founding Partner and Senior Analyst at The Real Estate Investment Network and currently owns nearly 200 doors in BC and Alberta. A seven-time best-selling author, Don’s expertise and passion for teaching Canadians how to create wealth through real estate are far-reaching and have made an impact on the lives of thousands. You can follow his daily thoughts on Twitter – www.twitter.com/DonRCampbell and on Facebook at www.facebook.com/thereinman.