Where did you hear about us?
The monthly magazine providing news analysis and professional research for the discerning private investor/landlord

Predictions and Certainty

Veteran international investor John Corey comments

Annie Duke's book, Thinking in Bets, frames the world as a poker game. The subtitle, "Making smarter decisions when you don't have all the facts" sounds like advice for PIN readers. There is stuff you can control, things you can react to and some stuff that is so hard to predict you do not know if you can respond successfully. This last category is made worse through the choices of others. What they do and how they react shifts the options which are open for you. Life can be complicated and risk is always there. So, let's review a few layers of risk for a property landlord.

First, you have risks associated with your tenant's situation and the fabric of the specific property. Will the tenant pay the rent on time? Are they likely to have an income in the future? What if they catch the COVID-19 virus? Are they likely to relocate for any number of personal or professional reasons that are outside your control?

The property which they rent will need maintenance - either routine maintenance or because something broke without prior warning. As landlords, we have recurring bills and one-off bills associated with the property. For some items, we know they can go wrong, plus it will be expensive. Expensive events, which are common yet rarely happen, tend to be insurable. For a regular payment now, you can shift the cost to someone else who is better able to take a significant hit in the future. You could say we are buying insurance to flatten the curve.

Financial success as a property investor happens when we think beyond just one property. Supply vs demand for property determines the prices one will pay. As business people, we are securing a property for the long term while we rent it short-term. Call this strategy a form of rental arbitrage. A tenant wants to use the property for a flexible duration while the landlord believes they will line up a sequence of tenants over the coming years. This model assumes nothing significant will change to impact the supply and demand (homes for rent vs tenant demand). Given COVID-19, some new conversations are suggesting we will see a reduction in demand for city-centre living given more people currently are, and will be in future, working from home.

A successful poker player learns they will never have the full facts before they need to make a decision. The time is short for a decision each time the dealer flips a card. Money is on the line. Even after the dust settles and the hand is over, the full facts are unknown. If facts remain uncertain, there is hindsight and learning when conducting a 'review of the facts'. Anna says skill can determine 70% of the outcome while 30% is luck. The danger is to forget that even when you do everything right, you cannot guarantee the outcome. Your success is not always because you made the right decision. Your failure is not always because you chose poorly. Other than you decided to be in the game when the event happened, a choice can play a small role in the outcome.

Want the full article?