Three things Paul Nugent taught me about investing in property

By November 29, 2018Property Investing

Paul Nugent, the co-owner of Melbourne-based buyer’s agency, Wakelin Property Advisory, sadly passed away on 19 November 2018. I first met Paul back in 2004. Over the past 14+ years, Paul and I have delivered many presentations together, shared a large number of mutual clients and have had numerous conversations and debates about property investment.

Not only was Paul a true gentleman with an encyclopaedic knowledge of the Melbourne property market, he had a fantastic sense of humour (although I never dared to say that to his face). I really enjoyed working with Paul and he’ll be sadly missed. As you can imagine, over the past couple of weeks, I’ve been reflecting on the information and knowledge that Paul passed on to me through conversations and interactions. And this has inspired me to write this blog. I’d like to share with you the three things that Paul Nugent taught me about investing in property.

Paul’s lesson 1: Some properties just take time

As Warren Buffet says, “The stock market is an efficient device that transfers the money from the impatient to the patient.” And that’s the key ingredient for any robust, long-term investment strategy. That is, time and patience.

However, patience should not be confused with apathy. Of course, it is important to review investment performance and make sure that your assets possess the requisite fundamentals to deliver performance. This will give you the confidence that you have the right assets to help you achieve your financial and lifestyle goals. But, as Kenny Rogers says, you must “know when to hold them and know when to fold them”. So, if you do have an impaired property, no amount of patience will make up for a poor-quality asset.

Paul would also often would remind me that some assets just take more time. And it’s patience and having faith that the fundamentals of an asset that will ultimately deliver long-term returns.

This concept is most applicable to entry-level investment grade assets. A lower quality asset (yet still investment grade) tend to take more time to deliver adequate investment returns. Therefore, if you own an entry-level investment grade asset, you will just have to have more patience and let time do its thing. Sometimes, this might mean that you need to hold onto a property for a couple of decades before you’re satisfied with its overall return – so consider this when mapping out your plans.

I recall conversing with a very experienced and wealthy property investor and he was telling me about a property that he owned for 10 years. Over the first nine years of ownership, the property did nothing. And just over the last year, the property has more than doubled in value. Time and patience.

Paul’s lesson 2: Ignore all the indicators and just buy when you can afford it

One of the things that Paul used to say regularly is that, “You should invest when your circumstances allow it – not any sooner or later than that”

Put differently, ignore all the media noise (which is persistently negative) and advice from well-meaning family and friends. Over the last 16 years, I’ve only read one (say, one) article that has advised that now is a great time to buy property. Of course, I’ve read thousands of articles suggesting that property is no longer a good investment. The current environment is a perfect example of the negativity around property. Changes to negative gearing, falling property prices, tighter credit are possible reasons why you shouldn’t invest today.

However, Paul would always advise you to ignore all these things and instead, only focus on what you can control, which is your own personal circumstances. We can’t control markets, the media, tax legislation or the banks appetite for credit. What we can control is, how much we earn and what we do with it, the investment decisions we make and what we invest in. So, Paul’s advice was to focus 100% of our energy on those matters and forget about the rest. There’s always going to be reasons why you should not invest.

Lesson 3: Most people don’t truly understand property

Paul used to get quite frustrated by commentators talking about property who really didn’t have a thorough understanding of the fundamentals – he used to say; “They wouldn’t be able to identify an investment-grade property if it hit them on the head.”

I appreciate that not defining what we mean by “property” probably leads a few people astray. When Paul talked about property, he was only referring to investment-grade property, which probably accounts for less than 5% of total property in Australia. However, when the media talks about property, they are usually generalising to such an extent that they imply property is a homogeneous asset, contained in only one market. However, we all know that the property market is very fragmented and is made up of thousands of different geographical-markets that are influenced by various micro and macro supply and demand factors.

Putting that issue aside, there are plenty of people in the property and media industries that hold themselves out to be property experts that don’t really understand property. Or maybe, it’s just that they’re more interested in understanding what’s commercially beneficial for them, rather than what’s right for their clients. A true understanding of the property market takes many years to acquire with regular experience and interactions with transactions (practical experience). Someone in Paul’s position was able to acquire a very deep wealth of knowledge. I guess, the key learning from this is be careful who you listen to and be careful what you read. Not everyone is going to have the same level of experience and knowledge, and not everyone is going to be solely focused on what makes a great investment for you.

Great life lessons, thank you Paul.

So, there you have it. These are the three key learnings that I am forever grateful that Paul Nugent taught me over the past 14+ years. I hope you get as much value from them as I have. RIP Paul.