Learnings From My Interview With Steve McKnight

[youtube id="LFL7uANAHFI" align="left" mode="lazyload" maxwidth="500"] Recently I interviewed Steve McKnight and I wanted to share some of the things I learned from that interview. A couple of days ago, I had probably what was one of the most important interviews I've ever done for On Property and that was my interview with Steve McKnight. This is the guy who got me interested in positive cash flow property in the first place. Without him, I would never have started Cash Flow Investor, which became On Property. So I was really excited to interview Steve McKnight. He didn't have a lot of time, so it was a very short interview. But it was great to pick his brain to understand the angle he's coming at things from and to learn a bit from him. I've been mulling over the things that we talked about for the last couple of days. Today, I wanted to share with you my learnings from the interview that I did with Steve McKnight. The biggest learning that I took away from that was the way that Steve talked about the potential that the market has to move. So he talked about a bell curve and – let me just draw a bell curve on this piece of paper for those of you who are watching the video. But basically, you've got your bell curve here and everything under the line are, let's put that as, most likely to happen. That's your 100% of chance of things happening. Something under that line is going to happen and then what Steve talked about is in the middle here is the things most likely to happen. So the very center is the market just remaining stagnant or the market slightly increases or the market slightly decreases. On the sides, on the end, under the bell curve are these your extremes. So this is the market absolutely plummets or the market absolutely grows exponentially and goes absolutely crazy. It was really interesting because a lot of the emails I've been getting from Steve McKnight have talked about the doom and gloom of the Australian market and he did talk a bit about how he feels like there's not a lot stimulating the housing market in Australia. But in saying that, he did talk about this and talk about how the biggest chance you're going to have is that one of these 3 things – the market's going to remain stagnant, it's going to steadily increase or it's going to steadily decrease, but only slightly, not extreme. I think the game that he's playing, whereas a lot of other people are playing a different game, is he's looking at that and saying, "Okay, what's the most likely scenarios that's going to happen?" but also, "How can I protect myself against catastrophic loss?" I think a lot of people don't consider the chance of the way the market is going to move. For example, a lot of people who missed the boom of Sydney and say, "Well, I don't want to invest now because I believe that prices might fall." But they don't think of this graph and say, "Okay, what are the chances that prices might fall?" Because there's a chance for everything, right? So people just assume the price is definitely going to fall, but that might actually be on one extreme side of this bell curve and the chance for that might actually be pretty small. But people lock themselves into this idea that the market is going to move this way so I'm not going to invest. I just love that approach that Steve took that said, "Look, here's the chances of things happening in the market, but I'm going to invest in a way that I can basically make money in any particular market." For the majority of people who invest in property and they only make money in one way – through capital growth. They're only making money when the market goes up. When the market is stagnant or when it's declining, they're losing money because they're not getting capital growth and they're negatively geared. However, there's ways that you can invest, for example, positive cash flow properties, where if the market's stagnant or the market's declining, you can still be making money through positive cash flow. And then, if the market goes up, you get the capital growth as well. I really like that approach to looking at what's the chances of the way the market is going to turn. Because, obviously, it's impossible to predict exactly what the market is going to do. But by using that strategy of saying, "Okay, well, most likely, the market is either going to go up steadily, decrease steadily or stay stagnant." If you're going to invest for something, you want to invest for the thing that has the best chance of happening. But you want to invest in such a way that, across a broad spectrum of circumstances, you can still make money. So I really like that about Steve's approach to investing and thinking about the market was that you need to be prepared to make money in all markets. But also, you need to think about what's the chance of this happening. Because, sure, you can go heavily negatively geared and invest for capital growth, but you're betting on the chance that growth is going to be extremely strong in an area, which may or may not have a likely chance, depending on how much research that you've done. So do your research and be prepared to make money in all sorts of markets. Something else that Steve mentioned was that your circumstances are guaranteed to change. Like, if one thing we know in life is that our circumstances are going to change. So investing in such a way to protect you against your circumstances changing, I really like to hear that from him. I know that a lot of people invest in negatively geared property with the goal to get growth out of those properties, but then financial hardship might hit for them. They might lose their job or a family member gets sick and they need to take care of them. There's so many different circumstances where things can take a turn. And so, a lot of people who have invested in negative geared property, at some point, find out they can't afford to keep those properties anymore and are forced to sell it. Circumstances do change over time, and again, I guess this is be prepared to make money in all markets, but also be prepared to make money in all circumstances of your life. So as you project forward, we have a tendency to project best case scenario. So if my income doubles every year for the next 6 years, you know, that's a best case scenario, but it's probably quite unlikely to happen. When we're thinking about investing, we think about the life we can have, we naturally go to best case scenario. Here's how much money I'm going to make, but I guess, we need to prepare that our circumstances may change. We may not be as financially well off in the future as we are now and the way we invest should potentially prepare for that. It just depends what your risk profile is. Some people want to risk it all, go for gold and make heaps of money. Other people are aware that circumstances may change and they want to be in a good position if their circumstances do change. I'm definitely on that side of the coin that I would prefer to invest in such a way that may be slower, but if my circumstances change, my properties are there to support me and I'm not forced to sell them because I don't have enough money to pay for my properties. Something else that I got out of the interview with Steve, who traditionally has been the “positive cash flow guy”. He sold a lot of his books 0 to 130 Properties in 3.5 Years, 0 to 270 Properties in 7 Years. Funnily enough, he hasn't written a book 270 to 0 Properties in 3 Minutes or whatever it was that he said. Because he traded with his business partner and got rid of those properties – that would definitely be an interesting book to read. But one strategy isn't there to rule them all. Steve obviously purchased a lot properties that were positive cash flow in order to get his passive income. But since then, he's invested in the U.S., he's done a lot of different types of investing in both residential, commercial. He talked about some investments where he was doing developments and things to gain equity faster or to gain capital faster. And so, there's not one strategy to rule them all. Positive cash flow is not the strategy. Negative gearing to get capital growth is not the strategy. Development's not the strategy. They're all great strategies and they can all work. Often, they'll fit different phases of your life or they'll fit different people with different goals. So be aware that there's not one investment strategy that is going to rule them all and you have to invest in this particular way, but there's multiple different investment strategies that you can use. And you can always change investment strategies throughout your life if you want. Now, I'm not encouraging you to go and jump between investment strategies, never getting good at anything, but I am saying that as your goals change, as your situation change, your financial situation changes, then be open to explore new investment opportunities and new strategies. Don't chop and change what I call "shiny object syndrome", you're just after the next shiny thing that's promising to get rich quick. But if you've achieved a certain goal, like financial freedom through positive cash flow property, and now you want to jump for something harder, well then, you can re-assess and may be invest in a different way using a different strategy. I got that from the interview with Steve that there isn't one strategy to rule them all. That strategies change as your situation and your goals change over time. The last thing that I got from Steve, which he talked about at the end, was, basically, if you're going to learn a strategy for investing property, then it's a great idea to listen to people who have done it. Now, I don't own any properties myself. You may or may not know that. I talk about that. You can go to onproperty.com.