One of the great 21st century traps is that within the palm of our hand we hold a mobile device connected to the largest database of information in the history of the planet – and it’s creating a false sense of security for its users.
We love taking the spark of an idea, or the crux of a question, and googling madly for answers. Soon enough, we’re patting ourselves on the back for coming up with what appears to be the ultimate solution or strategy.
We are now an ‘expert’ who’s formed an opinion on the subject, and are eager to share it with all and sundry.
Among all the life-topics up for discussion in our connected world, real estate is one that gets more than its fair share of attention. Most people have purchased a property at one stage or another.
Just go to any barbeque gathering and see.
But in reality, while opinions on real estate come thick and fast, few have the real-life experience to back up their claims and provide meaningful advice… and that is dangerous when potentially leveraging millions of dollars.
Opinion vs. advice
Let’s tackle the definitions first. What do I mean by opinion, as opposed to advice:
Opinion – a view or judgement formed about something, not necessarily based on fact or knowledge.
Advice – guidance or recommendations offered with regard to prudent future action.
Put simply, while everyone is entitled to their opinions, they often lack the weight of evidence to make them valuable. On the other hand, advice is founded in experience and knowledge and provides useful guidance.
Confirmation bias effect
Confirmation bias is an innate human condition. It’s a situation where we seek an answer to a burning question, but already feel like we have half an idea of what that answer will be.
We then hunt for information (usually via Goggle) to find a solution, but really only pay attention to results that already confirm our predetermined idea.
For example, if you believe the earth is flat, you can go online and find plenty of ‘information’ that will reinforce your position, despite it not being based in fact.
You have confirmed your bias.
This sort of clueless enthusiasm for a topic can be less controversial than the flat-earth theory.
The fight between militantly cash-flow investors vs capital growth extremists is a good property example.
Another cross-over area of caution in this subject revolves around professional advisors and their areas of expertise.
When it comes to property in particular, you want to establish a core team of advisors to help you navigate the investor path, but sometimes, they’ll actually provide opinions rather than advice.
You might find an accountant offering ‘advice’ (see: opinion) on what suburb to buy in, or a mortgage broker looking to ‘advise’ on what entity you should use for a purchase, or even financial planners who have no property investment experience.
This is not advice but, rather, opinion. And just because someone has expertise in a particularly field with the university qualification and work experience to prove it, doesn’t mean they have the right answers in other facets of your investing journey.
How to get good advice
The solution is actually simple.
Firstly, surround yourself with qualified people who can provide fact and experienced-based advice to you based on their field of expertise.
Secondly, seek those with real-life experience. It’s hard to give quality advice if you haven’t ‘walked the walk’.
A great test is to see if they’ll happily share their mistakes as well as their wins. If someone is willing to talk about losses as part of their own experience, they’re a valuable asset. Learn from their errors.
Finally, look for advisors who are pro-active, not re-active.
Tax accountants are a great example.
In my book, good accounts are very few and far between.
With most, you’ll get to the end of the financial year and they’ll give you their opinion on what you should be doing now to minimise tax.
On the other hand, great accountants will advise you well in advance – usually at the start of the financial year – as to the strategy you’ll employ to boost your tax return.
Steve Waters, The Real Estate Conversation, 2 September 2019