The best opportunities arise when you can find and exploit market inefficiencies.
Market inefficiencies exist where one party lacks the knowledge, skill, timing or financial resources of the other, and therefore has to accept a reduced price for the sake of completing the transaction.
It may not seem like it, but the property market is becoming more efficient. The way property is advertised for sale is an example that comes to mind.
Before the internet existed, those looking to buy property turned to the classified ads in newspapers to see what was for sale. This made it hard for interstate and overseas buyers to compete since they couldn’t easily access those newspapers. Even locals had to spend hours searching and sorting through the ads for properties that were relevant.
Today, anyone around the globe with internet access can quickly and easily find a variety of websites with properties for sale, and can then complete a search that filters the available properties in seconds.
The increased access to information means there is greater competition and therefore less inefficiency than in years past.
However, while there have been improvements, the property market is still a fundamentally inefficient market, primarily because buying and selling real estate is done by people (rather than machines), and people are irrational and emotional.
Furthermore, unlike the stock market where investors are not in control of day to day activities of the entities they invest in, a property investor can use his or her superior skill to be able to solve a problem in a certain way that allows him / her to access a profit others cannot.
For example, those who are skilled in renovating property can create a profit others can’t by using their superior knowledge of how to complete the project in a cost effective way and can therefore create a profit independently to what happens to prices in the wider property market.
Mind you, not all properties are inefficient investments. Investors that prefer ‘set and forget’ or ‘low maintenance’ options must wait for general market growth which, like the stock market, is beyond an investor’s ability to influence.
The principle here is that inefficient markets (like the property market in certain situations) provide the best opportunities to earn above average profits, provided investors have the skill to find, exploit and capitalise on those inefficiencies.
This does not mean that you need to shaft someone – far from it. Often a person has superior education, nous or skill that can allow them to solve a problem in a much better way than someone else but still create a win-win outcome for all parties concerned.
Steve McKnight- as seen in the Property Millionaire Book