Bernard Salt makes a “confronting proposition” in this month’s Australian Property Investor (API) magazine article titled How and why Australia will change (pg 65).
Here’s what it is … the confronting proposition,
“The good times are over; what lies ahead is a decade of challenge and change?“
I found this proposition interesting. It got my attention. Especially, when he mentions this … “will affect property investors.”
What does he mean by that? Are we in good times now? You mean it gets worse from here?
Wow! If he’s right, I’m in trouble.
So, I had to read on …
I kept reading, especially looking for the tie-in to property investment.
Unsettling Advice
As I read, I couldn’t help but thinking how Mr Salt’s proposition reminded me of some advice I received many years ago. It went something like this …
“You better enjoy your time in college (university) because these are the best years of your life!”
I never understood this assertion and it made me rather depressed. All kinds of questions came to mind after hearing this advice …
- “You mean my life’s going to get worse after university?”
- “I’m not enjoying my time in university at all, and you’re saying life’s only gonna go downhill from here?”
- “Why bother?”
But, like a lot of general off-handed advice, I found this to be untrue. I enjoy my life much more these days; much more than when I was attending university.
Back to the Article
I kept reading the article. Looking for the evidence to support Mr. Salt’s assertion.
Mr Salt discusses everything from Baby Boomers to Barack Obama. Julia Gillard even gets a mention! (She’s the Prime Minister of Australia; at least today she is, never know when you’re going to wake up in the morning to discover we have a new Prime Minister!)
He talks about generation Y. And, how the gen Ys aren’t entering the workforce as fast as baby boomers are leaving it. Then he makes the assertion, “This diminishes the tax base, the consumption base and the demand for property.”
And, there it is … I got my tie-in to property investing. He’s says the demand for property will drop.
Now there’s a much more concrete assertion. Much more so than, “The good times are over.”
So, the theory is, property demand will drop. I looked up from the magazine and pondered, “Hmmm, What do I do with this information?”
Well, the article kept going. So, I continued to read.
He takes us offshore, stating “… the demographic underpinnings of this argument are evident in places like Greece, Japan, South Korea, Scandinavia generally and much of Western Europe.”
Then he introduced John F. Kennedy and the United States. Taking us back to memory lane. To a time when people would “ask not what your country can do for you, but what can you do for your country.” A time when people made sacrifices.
Next upon the scene, Mr Salt introduces none other than Barack Obama. Although, not in a favorable light. “Politicians today don’t ask for sacrifice … ”
Then he asks some pointed questions as follows:
- “But, what happens when the economy stops growing?”
- “Or, grows at a fundamentally slower rate?
And, the reason for this slowdown … he says, “…worker growth we’ve been used to suddenly evaporates from 2011 onwards.”
Now, there’s a powerful assertion. And a powerful word … EVAPORATES! Conquers up all kinds of dreadful images.
And that’s where it all – in his words – “comes unstuck.” People living beyond their means are in trouble. “You were living a dream. The dream has ended.” He states in very plain language.
Then he makes the final tie-in to property with the last paragraph ending with another assertion, “In the 2010s only the smart and the informed will prosper.”
Summary of Assertions
So, let me summarize Mr Salts assertions as follows:
- The good time are over.
- Property demand will diminish after 2011.
- Worker growth “evaporates” after 2011.
- People living beyond their means are in trouble.
- Only the “smart and informed” property investors will prosper.
Oh boy, now what? As a property investor, how do I use this information? What do I do with it? Do I need to change my approach? Do I need to re-learn everything? Do I need to throw away all the experience I’ve accumulated over the years? Have all the rules changed?
Taking Stock
I’m confused. So, let me start by taking stock of my situation, then see if I can determine how to proceed.
First, I’ve been living below my means since I left home back in June 1981. I started off living in the military barracks in Sacramento, California, sharing a bathroom with four other guys. And, this was considered luxury back then as you normally shared with 50 other guys!
I bought a rental property in Florida before buying a house for my family. In the meantime, we rented. And, the house we rented wasn’t nearly as nice as the brand new house we built in Florida for $70,000 back in 1993.
In 1994, we bought a home and moved in. Located in the sleepy community of Huber Heights, Ohio. The home set us back another $70,000. Very basic; nothing fancy. Even back then, it was a bargain. We got it for about $10,000 under market value.
We sold the home a year later – made about a $10,000 profit – and moved to Australia. We then lived in rented accommodation. Our rented accommodation was not nearly as nice as the investment properties we purchased over the years. I remember commenting on one of our Defense Housing Australia (DHA) homes, “Gee, I wished we could afford to live in a house that nice!” I was half joking because we could afford it, but we chose to live below our means.
Finally, in late 2007, we bought a house in Alice Springs for us to live in. It’s nothing over the top and we got it for a very reasonable price. We could have bought a much nicer home at a much higher price. Again, we chose to live below our means.
Over the years, I’ve continued to invest in property. I analyze each property on it’s individual financial merits. And, look to build in a safety margin in case of market downturns. That way I’m never in a position where I have to sell. At least that’s my goal. I haven’t had to sell yet … knock on wood.
Back to the Confronting Proposition
So, now back to Mr Salt’s “confronting proposition” … The good times are over!
- So, you mean to tell me after all these years of living below our means, it’s only going to get worse? We can’t look forward to a better lifestyle?
- We can’t look forward to maybe living in a home that’s less than 15 years old?
- We can’t look forward to a few holidays in Hawaii?
- You mean we can just look forward to more years of living below our means and just being happy that we aren’t in the bread line?
General Off-Handed Advice?
I can’t help but think that Mr Salt’s assertion is like the general off-handed advice I received about my time in university … “Enjoy it because life is only going to get worse!” Just as I found this advice to be untrue, I hope to discover Mr Salt’s assertion to be untrue as well. Just as I enjoy my life much more now than when I was in university, I’m looking forward to much better times ahead.
Who Wants Boring?
And, why not? After all, is happiness all about smooth sailing? Isn’t it the challenges and then conquering the challenges that gives the most satisfaction? As opposed to sitting around doing nothing? Sitting around waiting for someone to say it’s ok to take action? Sitting around watching the world pass by; playing it safe? Never taking a calculated, well thought out, risk? That’s boring … and boring is never associated with good times … is it? Who wants boring?
How is the Property Market like a Golf Course?
And, I look at the property market as a golf course … although I’m not a golfer by any means! But, here’s what I’m talking about …
No two golf courses are alike. Therefore, each player has to adjust to the particular golf course. And, the best players usually win; regardless of the course.
The best property investors usually win; regardless of the market; regardless of the politics; regardless of the media hype.
Therefore, I need to get out on the playing field and get better as an investor. Just like a golfer must get on the course to get better. So, if you’re not getting out on the golf course on a regular basis, how can you expect your golf game to improve (hence my poor golf game!). And, if you’re not getting out on the property investment playing field, how can you expect your property investment game to improve?
You can’t.
What Do I Do?
So, I’m not sure – as a property investor – what to do with Mr Salt’s confronting proposal; how to use the information.
I suppose I’ll just keep improving my game. Keep playing. Keep studying the fundamentals; keep working on the basics. And, keep hitting the ball. When I encounter a new course – new market – I’ll have to make adjustments. But, my fundamental game will remain the same.
And, I’ve found over time that fundamentals are the key. If you don’t master the fundamentals, golf can be very unforgiving (I have direct proof of that!). In this way property investing is like golf. Get confident at the basics and you should be able to navigate just about any golf course – any property market – and finish with a good score.
So, why not get out there and have a hit?
You can do it. And, then enjoy the better days; the good times ahead!