How to Invest in Uncertain Times

I was 10 years old when I first saw Back to the Future. It was my favourite movie ever, and I couldn’t wait to see part two. But, by the time the sequel was released, I was 14 and Marty McFly wasn’t as cool as he used to be. By that time, however, I had developed a greed gland, so the primary plot device of the movie, Grays Sports Almanac, gripped me.

This little book contained every sports statistic and score between 1950 and 2000; a very useful resource for a gambler in the 1950’s. In the movie, the almanac ends up back in 1955 and in the hands of Biff, who uses it to build an empire betting on sport events. In that moment, my eyes were opened to the economic benefits of possessing perfect foreknowledge.

If only such a thing existed for the real estate and equity markets. Uncertainty in investing relates to our inability to perfectly forecast future events. It’s the one equalizer of all investors, because none of us can predict the future.

It just so happens we find ourselves here in Australia at a time when there seems to be a heightened degree of uncertainty. Our real estate prices have consistently appreciated for over 15 years. Yields are low, rental prices are stagnant, lending is tightening up, and our most important trading partner is showing signs of weakness.

All of this leads us to these three possible scenarios:

1. Property could increase in value, especially if the RBA continues to lower interest rates to stimulate inflation.
2. Property values could remain flat for a decade as we wait for wages to increase and catch up with home prices.
3. If anything crazy happens in the world, property values could decline significantly, back to 2013 levels, or perhaps even lower.

How should we respond? Here are five tips for investing in uncertain times:

1. Accept That Investing Will Always Involve Uncertainty

When has there ever been a time when the three scenarios mentioned above were not a possibility? At any point in the future, property values will either increase, remain stagnant or go down.

At every point in history, you were just as uncertain as you are today about what the future holds. You might have felt more certain, having an opinion based on market conditions, but your feelings of certainty were an illusion.

This is why investing involves risk, and therefore a corresponding return. When we accept this reality, we are in a position to identify the risks, and then proactively mitigate them. But we can never completely remove the uncertainty.

2. Adjust Your Strategy, But Don’t Lower Your Standards

I was recently speaking with a client who has been growing increasingly frustrated with the Melbourne market and his inability to find a suitable development project. He’s having trouble finding the property that matches both his deal profile and his budget. Everything is too expensive and the profit expectation is too low.

He brought up the question of whether or not he should just buy a house and land package in the western suburbs where prices are lower. Rather than pursue a manufactured growth strategy, he would give up on that idea and hope for long-term capital growth – never mind the fact that scarcity is almost non-existent in the outer west.

In the end, he realised he was asking me for permission to lower his standards of what was possible, given the market conditions. He was thinking like a victim of the market.

Buying an investment property had become an emotional decision. He felt that he just had to buy something to give himself the impression that he was moving forward toward his goal. Surely, buying something would be better than doing nothing.

In our mentoring program, we encourage investors to have a different mindset. Rather than be victims of the market and become emotional, we must take responsibility, keep it about the numbers and recognise our power to impact our future. In the words of Bowes Kelly, “We find a way or we make a way.”

If your strategy is to manufacture growth and you can’t find any deals in your preferred area, perhaps you could adjust your deal profile by searching in a different area. Alternatively, you could make a more dramatic shift in your strategy. The point is, don’t let the market lower your standards of what’s an acceptable outcome. If you do, you’ll likely end up buying something you will later regret.

3. Stay Active And Don’t Let Negativity Paralyse You

Over the past month, the media reports on the global economy have been quite bleak. China seems to be struggling, and financial markets around the world are flashing red, revealing fear in the psyche of investors.

We recently ran a poll at PropertyInvesting.com to ask our members this question: “What is your primary investing strategy for 2016?” The response from 21 percent of them was, “I’m on the sidelines.” In other words, one in five investors plan to do nothing in real estate for the next year.

If you’re sitting this year out or if you’re not actively engaging the market, be sure you haven’t succumbed to irrational fears like Chicken Little. There have only been a few times in history when the economic sky was actually falling.

Even if you have the genuine opinion that property is overpriced, you could still make offers at prices you believe are fair. At the very least, you could take action toward becoming an area expert where prices are more affordable relative to incomes.

4. Find Creative Solutions To Boosting Your Income

Depending on your goals, strategy and your financial situation, the best use of your time may be to focus on increasing your income.

In Steve McKnight’s book From 0 To Financial Freedom, Steve emphasises the importance of creating an income accelerator that will fast track your progress toward financial freedom. An income accelerator adds to your income, but not on a perhour work basis. It’s income you derive through leveraging, so you don’t need to trade your time for money.

It may involve starting an Internet business, harnessing your intellectual capital, trading options or even direct sales. According to Steve, if you don’t have money for deposits, “Figuring out your income accelerator is more important than working out your property investing strategy, because the money you’ll bring in the door with your accelerator is what you’ll be taking out the door to buy properties.”

5. Focus On Education

When situations of heightened uncertainty arise, the best defence is to increase your knowledge, skills and competency. That way, you’ll be able to recognise opportunities that already exist, avoid opportunities that are foolish, and take advantage of opportunities that arise when the market shifts in your favour.

In fact, seasons of heightened uncertainty often lead to the greatest opportunities, as long as you have positioned yourself well. On the other hand, if you’ve sat idle and inactive while waiting for your fears to pass, then you’re more likely to miss out.

To help empower investors during these uncertain times, I’ve recently written an e-book called “How to Invest in Real Estate: The Definitive Guide.” In it, you’ll find help and guidance while you travel your journey toward financial freedom.

If you’re ready to fast-track your investing knowledge and skills, you should consider Steve McKnight’s Property Apprenticeship course.

By Jason Staggers

Jason was a personal mentor working with Steve McKnight's Property Apprentices. He helped hundreds of investors apply Steve's teachings in the real world and achieve greater results on their journey to financial freedom. Jason now lives in Perth, WA where he leads Neuma Church.