Although often worried about, expected, and even ‘predicted’, the end of the bubble, a severe downturn – when it actually happens – often catches observers by surprise.

In part, that’s because much of the time, it seems the commentary and market advice of ‘analysts’, economists and market pundits is akin to looking in the rear view mirror – interpreting what just happened, rather than forecasting.

But spare them a thought: The factors, drivers, influencers of the market that the pundits watch incessantly don’t follow neat rules like physics. If only they did. Other factors, like the spurts of greed and panic that characterize any free market, as well as moments of chaos that the pundits don’t/can’t take into account – these make their impact felt.

The other thing is a phenomenon I think of as ‘big picture v. small picture’.

For it seems many of those who focus on the property market fail to recognize is that a ‘property slump’ is usually part of a bigger thing: an economic slowdown or recession – if not depression.

A downturn in the property market is a symptom – not a cause or an end in itself. Experience (and analysis after the fact) teaches us this, but it’s something many market participants, especially newbies, don’t perceive until later. Again, that rear view mirror thing.

Confidence – or a lack of. Look at what it can do.

Confidence is the key

Markets, especially markets that run on credit or OPM (other people’s money) rely on confidence. A period of recessionary pressure, even a short one, can shred market confidence by gutting the confidence of those oh-so-crucial market players: the lenders.

It’s no coincidence that one of the chapters of our book The Day the Bubble Bursts was entitled ‘Why the banks are bastards’. The influence of lenders on the fortunes (and misfortunes) of property investors is almost impossible to overstate. Many, many investors have been tipped into bankruptcy by nervous bankers, seeking to reduce the bank’s “exposure” to a sliding property market.

In a follow-up book called How to Survive and Prosper in a Falling Property Market (still available here) several investors and professionals gave more detailed analysis of how banks behave – and what an investor needs to be aware of to deal with their lenders’ changing appetite for risk. In that book, we used a more neutral description of it than ‘banks are bastards’, and explained that there comes a time in the market cycle when your interests as a borrower, and the bank’s interests as lender ‘diverge’.

At that point, the golden rule applies: “He who has the gold makes the rules”. But (and this was one of the main points of the book): there are steps you can take to insulate yourself from the chill ahead of the snow storm.

But back to the idea of an unexpected “off-stage event” causing a slump. Judging by the turmoil on world money markets in response to the just-announced result of the UK Brexit referendum, the outcome was a surprise to many. It was clearly a ‘factor’ not predicted.

Already, people have tried to predict the effect of a (promised) drop in migrants moving to the UK, and the effect of that ‘change in demand’ (oh boy) for housing on the property market. OK, so that’s interesting – but can you see how that falls into the trap of seeing the property market as a thing in itself, as opposed to a symptom of a greater system?

People focused on a view of the UK’s housing bubble may have seen the statement by the Governor of the Bank of England addressing his ‘extensive contingency plans’ for dealing with the already apparent flight of capital, constrained liquidity, and the severe (albeit temporary) stock market slump triggered by the Brexit result.

Remember what I said about confidence – particularly lenders’ confidence – and the effect of that on an economy and market? Take a look:

Consider that the Bank of England is now in the position of, somehow, making billions of pounds available to head off a crisis of confidence. Governor Mark Carney said he said the bank will take “all necessary steps” to maintain monetary and financial stability in the wake of the Brexit result, citing a barrel of money in reserve worth £250 billion and trying to sound confident:

“The capital requirements of our largest banks are now ten times higher than before the crisis. This substantial capital and huge liquidity gives banks the flexibility they need to continue to lend to UK businesses and households, even during challenging times.

“Moreover, as a backstop, and to support the functioning of markets, the Bank of England stands ready to provide more than £250bn of additional funds through its normal facilities.

“The Bank of England is also able to provide substantial liquidity in foreign currency, if required.”

Ask yourself how that will flow through to international banks, including those that are the parents or major shareholders of banks on this side of the world?

Do you think the events and decisions flowing from the Brexit result in the northern hemisphere will increase or decrease our local banks’ appetite for risk? It’s pretty clear what the answer to that question is. Safety first.

Until you see how quickly a bank can change its “priorities for lending” and alter its “lending criteria” (even for existing lending) you may not realize how horribly, horribly exposed its borrowers are.

So, what to do? Well, there ARE steps you can take to increase your financial resiliency in times of uncertainty and market upset.

But you know that old market saying? ’Buy when everyone else is selling and sell when everyone else is buying’? (Warren Buffett says it as ‘We try to be greedy when others are fearful, and fearful when others are greedy.’) Well, that’s HARD.

To act counter-cyclically takes guts – and preparation. To cite another well known axiom: ‘The time to repair the roof is when the sun is shining.’ I know I say this a lot, but when the market’s booming and money is (relatively) easy to come by, it’s often tempting to let one’s financial ‘leaks’ just keep leaking. Which is a recipe for heartache, believe me.

This column isn’t a sales pitch for our book, but you know what? Come to think of it: I do recommend you read it. Here’s a sample chapter (PDF).

What it’s useful to know is that although there’s no guarantee the future will be like the past, there are patterns and you can learn to (a) recognise them, and (b) take steps to deal with them. Also, certain ‘actors’ in the drama will operate true to type. You can gain a lot by learning about how the game works – before your financial ‘life’ depends on it – and reducing your risk profile before the winds arrive.

If I can venture this sole prediction: I would say the the Brexit result and its associated turmoil will see a longer period of low interest rates. So factor that in to your decisions.

Peter Aranyi

And will ‘the bubble burst’? Yes, eventually. They all do.

Best wishes,

- Peter Aranyi, June 2016

www.EmpowerEducation.com

Quoting or reproduction welcome with attribution to www.EmpowerEducation.com

Peter Aranyi is the author of Commercial Real Estate Investor’s Guide and Negotiating Real Estate Deals, and editor of several other property investment books including How to Survive and Prosper in a Falling Property Market, The Rascal’s Guide to Real Estate, Property Tax – A New Zealand Investor’s Guide and Property Law – A New Zealand Investor’s Guide.

Click for details and to order your copy.

Olly Newland’s book Climbing the Property Ladder — Tales of Profit and (mis)Adventure in the Real Estate Jungle is available now.

“This book covers some of Olly’s amazing adventures as the purchaser, landlord, or vendor in a property deal or as a consultant for others. The stories have the common threads of real estate and property investment and the common human failings of greed, fear, naivety, carelessness and envy. Some have happy endings, some do not. Many are about raw human emotion — property just happens to be involved along the way.”

Feel free to share this link with people who might be interested in it. (But please contact us for permission before you distribute the file or embed it in a website.)

MP3 file © 2014 Empower Leaders Publishing. All rights reserved.

Comments/questions welcome. Send them via the contact us form.

- Peter Aranyi

See other commercial investment resources

Peter Aranyi

There’s a lot of ‘secret sauce’ and bunkum sold in the ‘How-you-can-get-rich-investing-in-property’ game.

Property spruikers and salesmen of all kinds will try to sell you on their Ten Step Magic Programme to Profits.* Some will promise you the sky — basically, they will say anything to get your money (and ‘Strictly no refunds’).

Some of these ‘Millionaire by Monday’ hype merchants are very slick and motivational. Others seem more genteel, less rubbery, and more down to earth. But frequently (always?) they come up short on specifics, or they’re a one trick pony, pitching the same approach (e.g. do-ups in a low rental area) for everyone. Be wary. Avoid them. I mean it.

Years ago a friend of mine taught me that property investing is a game you win by consistently aiming to beat the averages.

For example, say you’re looking for a rental property, it works like this:

If you can buy a house in a better than average area (defined by a record of better than average capital growth, therefore better than average prospects), and you negotiate a better than average deal** or finding a ‘twist’, then you do what it takes to get a better than average rent, selecting a better than average tenant — and you make sure to manage the property better than average …. well, you get my point:

You’ll do better than average.
That just makes sense.

For myself, I’ve learned that success in investing (or any other arena, actually) is not about finding a ‘Secret formula’ or ‘Turbo-charging your investment success’.
Yes, sure, that’s how things are sometimes sold … selling the sizzle … but often success is a process of taking a few right steps, getting the right advice and information, and (crucially) following through.

Sometimes it’s about keeping your nerve, staying on a path, doing the work, then reaping the rewards. (Are there any guarantees? No. Bad, unexpected things can happen. Consider the impact of the Christchurch earthquakes.)

Some operators (I’m using polite words) use pressure tactics to pitch the gullible on a quick profits scheme or a plan like Blackadder’s — you know, ‘A plan so cunning you could stick a tail on it and call it a weasel.’ I’ve seen so-called ‘investments’ sold on their ‘tax benefits’, and thinly-disguised rip-off schemes and rorts targeting lenders, where the ‘buyer’ is a victim too.

The trouble is, time and time again I’ve seen those involved in those schemes come unstuck — sometimes really badly unstuck.

Under the near-hypnotic influence of a smooth salesman pitching a ‘Tonight only! Price goes up tomorrow! Buy NOW!’ offer, otherwise sensible people fail to get professional advice (or worse, ignore it!)

Don’t be like those people who throw caution to the wind, setting up turmoil in their personal and financial affairs by greedily chasing the latest novelty Get-Rich-Quick ‘investment’, sometimes paying tens of thousands for ‘Secrets Only Millionaires Know About Investing’.

Sometimes people are sold ‘Access to an EXCLUSIVE circle of like-minded people’ where it turns out, the newbies are really just a pool of suckers for the predators running the show … or fresh meat for their property trader and developer mates who profit by selling them ‘Hot Deals’.

We’ve all heard the line, ‘If it sounds too good to be true, it probably is’. Yeah, well. Believe it.

For the sake of argument, assume just for a moment that I’m right:
Success will come to you if you consistently do a finite number of controllable things better than average. That doesn’t sound as sexy as ‘Millionaire by Monday’, does it?

But you know what? It actually is.

- Peter Aranyi March 2014
www.EmpowerEducation.com

* I made that title up. I’m not referring to anyone specifically.
** Price or terms. They’re somewhat interchangeable — see Negotiating Real Estate Deals.

Quoting or reproduction welcome with attribution to www.EmpowerEducation.com

Peter Aranyi is the author of Commercial Real Estate Investor’s Guide and Negotiating Real Estate Deals, and editor of several other property investment books including How to Survive and Prosper in a Falling Property Market, The Rascal’s Guide to Real Estate, Property Tax – A New Zealand Investor’s Guide and Property Law – A New Zealand Investor’s Guide.

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The Rascal’s Guide to Real Estate — Revised, updated and expanded (click to enlarge)

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Click to read the full article on www.realestatemonitors.com.au

Originally from Neil Jenman’s website

Regards, Peter Aranyi   Empower Education

If you’re lucky in life you can learn from people more experienced that you. This book draws together strategies for success in negotiating real estate and other deals as an investor, seller, buyer, landlord or tenant. Negotiating Real Estate Deals – How to unlock a GREAT deal is an approachable, digestible guide to what works (and doesn’t) in this vital area.  Available as an eBook.

Get the inside story on how you can greatly increase your ability to achieve the results you want in a negotiation. Learn about the costly mistakes some investors make when faced with a negotiation – and how you can avoid them. Discover the three crucial variables of ANY real estate negotiation – and how you can use them ethically, responsibly, to your advantage. Find out how to make the best of almost any negotiation by using proven, time-tested, specific and relevant techniques that apply directly to local conditions.

Negotiating Real Estate Deals – How to unlock a GREAT deal will give you practical and useful tools, tactics and procedures, and – more importantly – it will help you develop your own successful approaches to different real estate negotiation situations. You won’t win every time, but you’ll do much, much better if you apply what you learn from this book. You’ll discover how to build your negotiation skills and awareness. You’ll gain knowledge that you will be able to use over and over again, in deal after deal, year after year.

Topics include:

• How to prepare for a negotiation – vital rules to follow every time
• Does it have to be win/lose? How to avoid sour compromise, and play the game ethically
• Why almost any negotiation should be about much more than just price
• Working with real estate agents – how to get them to help the process
• Common tricks some negotiators – and some agents – employ. How to recognise them and deal with them
• Some ‘never break’ rules for negotiation – when buying or selling
• Using the three crucial variables of any negotiation
• Some common mis-perceptions about what works
• Developing your own negotiation style (or styles)
• ‘Haggling’ and ‘bargaining’ versus ‘educating’
• How to avoid being worn down or ground down
• How to keep it from becoming personal (unless that’s exactly what you want)
• Should you lay your cards on the table or keep them close to your chest? Sometimes it pays to be candid.
• When to negotiate yourself – and when you would be better to use an intermediary
• Ploys and ruses, strategies and tactics – using them, recognising them and countering them
• How your tactics and approach will probably vary with the property cycle
• How to identify vendors who are more likely to be flexible or ‘motivated’ – looking for clues without looking like a shark
• How to generate options and alternatives, what to do when it looks ‘stuck’ (sometimes, the most flexible wins)
• Calculating your ‘walk away’ – your real bottom line – and finding theirs
• Understanding how power (or perceptions of power) can shift during negotiation and how to preserve yours
• Negotiating with your existing tenants maintaining the relationship while getting what you want
• New leases – seeing the long term implications of incentives, inducements and exclusivities. Traps for young players
• Negotiating with larger tenants – how to work with them without giving in
• How do you deal with an uncompromising opponent and remain reasonable
• Whose paperwork or lease form? What are the implications of using theirs?
• How you can sometimes make your terms palatable by understanding their need for something you can easily offer them
• The dangers of ‘looking good’, the importance of building rapport
• How you can identify – early – the relative bargaining strengths of each party
• When to reach for a mediator or arbitrator … and how
• Making the most of the offer/counter-offer process
• When ‘flying a kite’ in a negotiation can blow up in your face
• How to say what you mean without backing yourself into a corner
• When to break off talks – really
• Dealing with contractors, professionals or tradespeople under pressure

Order your eBook here (includes printable PDF & ePub versions). 

The best advice I can give you is this:
Find a way to benefit from the experience of others you can trust.
Get them (or their information) into your circle of influence.
If we can help, great. That’s what we aim to do.
Best wishes,
Peter Aranyi
editor, Negotiating Real Estate Deals – How to unlock a GREAT deal

This month, more than two years after the out of court settlement detailed below, Philip Ronald Jones (Phil Jones) published a number of untrue and misleading statements about this litigation.

In these statements, Phil Jones attacked the character and motivations of the plaintiffs; he misrepresented aspects of the legal proceedings; he breached a confidentiality agreement relating to pre-trial mediation and misrepresented events at that mediation; he made false claims about the costs of the litigation; and he made several serious and unsubstantiated allegations of supposedly ‘illegal’ actions by the plaintiffs and their lawyers, and [alleged] ‘copyright breaches’ by Empower Leaders Publishing.

His allegations are untrue. If you have any query about any matters connected with this, please contact us through this Contact form.

Here is a link to a statement by Peter Aranyi in response published on his personal weblog www.thePaepae.com.

Note: The company Richmastery Limited was re-named Ralph Trading Limited on 20 May 2009 immediately prior to being placed in voluntary liquidation on 19 June 2009. Public records available at the Companies Office website (search ‘Ralph Trading’ or Co. # 1207353 in the Companies Register) show that the company and Phil Jones were, at the time of liquidation, defendants in litigation against them by Gilligan Rowe & Associates and Matthew Kevin Gilligan; and that Phil Jones has left NZ and re-located to the United States.
Legal advice to the plaintiffs in the Empower case in 2007-2008 had raised the possibility of these actions (company liquidation and emigration before a court hearing) and this was a real factor in the plaintiffs’ decision to accept the Richmastery/Jones $65,000 offer accompanied by the admissions and High Court-filed defendants’ undertaking detailed below to settle the litigation.

ARCHIVED:

UPDATE: June 2008
Empower Leaders Publishing and the plaintiffs advise that a settlement was reached in their copyright lawsuit (CIV 2007-404-5516) against Richmastery Limited, Philip Ronald Jones (Phil Jones) and John Bedggood.

This followed the formal acknowledgement of copyright infringement by Richmastery Ltd (sole director: Phil Jones) and John Bedggood in their use of the Empower authors’ material; the filing in the Auckland High Court of a defendants’ undertaking not to infringe the plaintiffs’ copyright in future; and the payment of $65,000 in damages.

A summary of the terms of settlement:
1. Richmastery Ltd and John Bedggood acknowledge the use of materials from the underlying works pleaded in the Statement of Claim, and that there has been a breach of copyright in using those materials,

2. Each of the defendants: Richmastery Ltd, Phil Jones, and John Bedggood undertakes not to copy, sell or distribute any material that may infringe the copyright in the underlying works pleaded in the Statement of Claim. This defendants’ undertaking (below) was filed in the Auckland High Court. (Available here as a PDF 170k.)

3. The sum of $65,000 was paid by the defendants Richmastery Ltd, Phil Jones and John Bedggood to the plaintiffs Empower Leaders Publishing Ltd, its authors Olly Newland, Mark Withers and Peter Aranyi, and Empower Education.

4. The settlement relates only to the allegations of infringement of the plaintiffs’ works pleaded in the Statement of Claim, that is, in relation to the 19 August 2006 Richmastery seminar.

[note: pages cropped and reduced for display - full images (PDF) here]

UPDATE: February 2008
At the first case management conference 6 November 2007 Judge Robinson set out a timetable for the parties to provide discovery of documents relevant to the issues of the case. More evidence is now being collated in preparation for trial. If you have further information relevant to the actions of Richmastery, its employees or agents, please contact Empower Leaders Publishing or solicitors Simpson Grierson (contact details here.)

UPDATE: September 2007
Legal proceedings are underway. Empower Leaders Publishing Ltd and the authors/owners of the intellectual property at the heart of this case have filed a claim against Richmastery Limited, Philip Ronald Jones (Phil Jones) and John Bedggood in the High Court in Auckland.

Seeking information
(click here) 

If you have any further information on this matter, or similar matters, please contact Empower Leaders Publishing Ltd or seek advice from your solicitor. Use the Contact form to email us. Correspondence will be treated in confidence.

The evidence documentation is more than 70 pages. Available by request to concerned parties only.

Evidence: Example 1 | Example 2 | Example 3 | Letter as PDF

Evidence: Example 1 | Example 2 | Example 3 | Letter as PDF

Copyright © 2007 Empower Leaders Publishing Ltd    All Rights Reserved