It’s all too easy to get caught up in your emotional decisions, even unwittingly, when you’re shopping for new property investments. Even making a personal judgement on a prospective property’s aesthetics can lead to an emotional investment rather than a smart one.
We’ve seen it time and again, yet we can’t emphasise enough our top tip for real estate investments: keep your emotions out of it. Emotional investors don’t make good investors.
Below, our own Michael Beresford explains why investors should leave their emotions at the door.
Fear, procrastination, attachment and gut instinct … None of these should feature in your decision to purchase property. Your aim with investment property is to churn a profit or income from it – nothing more.
The first step to making smarter decisions is to be able to acknowledge when your emotions might be getting in the way. So here are some of the more common emotional factors that lead to poor purchasing decisions…
Fear of Missing Out
For many people, there seems to be a sense of urgency around buying property, especially in a bull real estate market.
When there’s a surge in real estate transactions, it’s easy to get caught up in the frenzy and worry that you’ll miss out. Many investors are overcome with impatience as they see ideal properties snatched up week after week.
But in such a climate if you’re not careful, it can be easy to overcapitalise just to get into the market. If you follow the herd mentality and buy because the market is ‘hot’, you might end up overpaying for a property that’s already seen plenty of growth and is about to enter a correction phase. That means little equity growth for you.
It’s good to remind yourself that ‘the right time to buy’ doesn’t just come around once. Other opportunities will always present themselves. Better to do your due diligence and take the time to research the demand and supply of the neighbourhood than to buy a property on a whim and potentially pay a pumped-up price.
Getting Too Invested
Many real estate agents aim to appeal to the potential buyer’s emotions to bring about a solid purchase. Become too attached in a property, and you’ll find yourself justifying overpaying your budget or forgoing due diligence. You might even end up compromising on your own investment strategy.
This can happen in the simplest of ways. Your childhood home is on the market. A property has come on sale in a street you’ve dreamt of owning a home in. There’s an architectural feature you’ve always wanted.
But the only time you should be influenced by your emotions is when you’re buying a home to live in. For investment properties, it’s imperative you simply assess the property’s ability to produce long and short-term profits.
If you find yourself unable to do this, you might need to call in for a third-party (professional) opinion to provide the voice of reason.
Mixing Investments with Home Goals
We’ve seen many people with the attitude that they’ll purchase an investment property now to live in later down the track, or to use as a holiday home. But it’s an untenable way to build a portfolio, since you’ll find yourself purchasing property based on its potential to fulfil your own lifestyle needs.
Your investment decisions must be pragmatic, based on numbers. Mix up your owner-occupier and investment properties and you’ll find yourself jeopardising your own investment strategy. You could end up with a house that isn’t in line with the tenant demographics of the area or that doesn’t show much growth.
How to Keep a Level Head
The key to keeping your emotions out of the game is to create a long-term investment portfolio plan and stick with it.
Investing in real estate is essentially a business, so you need to have a business plan in place that can account for your own circumstances, mitigate risks, and contain an exit strategy that enables you to stay focused on your financial goals throughout your investment journey.
And as much as you try to steer clear of emotions, it can be a good idea to enlist professional help to ensure you make the best decisions to help you achieve a diversified investment portfolio.
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