Before you get sucked into it
By Allon Raiz
Some time ago, local neighbourhood markets were popping up monthly so, for our next meeting, my mentor and I met up at one of the most popular markets to see what the hype was all about. Walking through the market, it was refreshing to see the level of ingenuity and innovation that some of the products on sale offered customers. We sat down with our coffees and watched families stream through the entrance for their weekend outing.
At one point in time, the emergence of local neighbourhood markets was similar to the hype of buying and renting of property. My wife and I had attended a friend’s anniversary dinner and a number of the guests at the table were discussing their successes in the property market. My curiosity really piqued when they boasted about the incredible returns of between 15% and 18% that they were achieving. The majority of these guests were “flipping” property – either buying it or selling it – and all of them seemed to be making millions.
“Is it just me who isn’t in the know regarding the thriving property market?” I asked my mentor. “Even my barber is getting into it!”
He chuckled and responded, “Have you heard the saying: ‘When your barber gets into property, it’s too late for you.’? Fads have come and gone for hundreds of years and it’s important that you don’t get caught up in the hype just so that you can keep up with everyone else. Rather focus on securing viable and scalable opportunities,” he explained.
Consider the following
All entrepreneurs should critically assess whether a new business opportunity is just hype by asking the following questions:
- Is everyone really making money? When someone is telling you about a new fad, take time to ask the right questions to find out what is really going on and whether everyone is really making money from it. Look for signals that this might just be an even spread of an opportunity where some are making money, some aren’t, and some are making average returns. Always look beyond the hype for a natural distribution of people who are making money and those who aren’t.
- Is it too late? Analyse if these so called “super” returns are starting to decline. For example, if they initially achieved 25%, then 20% a year later, and 18% the following year. Find out if the returns have normalised because if they are declining, it’s too late – depending on how far they are from a normal return.
- Does the opportunity talk to my competencies? Evaluate whether you actually understand what the market dynamics and drivers are that make a good investment or not. If, for example, you are buying property, do you understand the steps involved, the difference between a good location and bad one, what a good return is, what the transfer costs are, etc.
- Does this opportunity talk to my experience? Can my experience be used in any way to make better decisions for the opportunity?
- What is the next wave or opportunity going to be? When a wave starts crashing, another one is always building behind it. Have you identified the next wave and are you following it?
I asked myself these questions about the rental property hype and decided not to go into it because it was too late; I had no experience and no competencies. Perhaps the property auction market was the next wave based on all the defaulters?