ARCHIVES - "Safe As Houses"

PROPERTY INVESTORS V'S PROPERTY SPECULATORS—Are They Different Animals?
Copyright © 2005 John Hopkins

I guess the answer to the question of whether property speculators and investors are different animals is that they belong to the same family but have marked dissimilarities.

Like buzzards and budgerigars, or wallabies and wombats. They sit at opposite ends of the same spectrum. They have the same goal—to make money from property—but they differ in the degree of risk they are prepared to take and the time-scale of their investment program.
The dictionary gives a clue to the differences in their outlook.

“Speculation” is defined as the act of engaging in risky business transactions that offer, short term, the possibility of a large profit.

I suppose the ultimate speculator is the bloke who punts his bank balance on a 100/1 tip on the Melbourne Cup.

The word “investment” has an interesting history. It comes from the Latin word meaning "to clothe". The "investment" of a Lord Mayor involves him putting on the robes of his office. I believe that it derived its commercial use from the Middle Ages practice of dressing up a son and heir and sending him on the Grand Tour of Europe. The family reckoned that the money outlaid on outfitting him would be well-spent if it resulted in the forging of useful, rewarding contacts—maybe the snaring of an heiress. So the word came to have an additional, commercial meaning of laying out money in the hope of a medium to long-term return.

Today, a property speculator is someone who wants large quick returns for which he is prepared to take greater risks. An investor looks for long-term return with a minimum of risk.

The speculator depends on timing—on predicting the extent and duration of a rise in the property cycle. He can only operate successfully in a rising market.

For an investor, the difference between the top and bottom of a property cycle is not of such great importance if he holds his property over a period that covers three, four or five.

The compounding annual returns from prime real estate, over many years, are well in excess of inflation and more than meet the expectations of those who are prepared to stay in for the long haul.

Long-term investment can be undertaken by people for whom it is not a full-time occupation. With professional advice about purchase, finance and rental management, an investment property can work satisfactorily for its non-professional owner.

Speculators are really traders whose mode of operation, to be successful, demands full-time attention.

I know a large number of prospering investors, but only a few happy speculators.