{"id":1561,"date":"2022-01-20T06:13:40","date_gmt":"2022-01-20T06:13:40","guid":{"rendered":"https:\/\/royabhishek.in\/urbanbuyer\/emotional-mistakes-every-property-investor-should-avoid\/"},"modified":"2022-01-20T06:13:40","modified_gmt":"2022-01-20T06:13:40","slug":"emotional-mistakes-every-property-investor-should-avoid","status":"publish","type":"post","link":"https:\/\/royabhishek.in\/urbanbuyer\/emotional-mistakes-every-property-investor-should-avoid\/","title":{"rendered":"Emotional mistakes every property investor should avoid"},"content":{"rendered":"

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We all know that we shouldn\u2019t allow our emotions to rule\u00a0when making property decisions.\u00a0\"35478370_l1\"<\/strong><\/p>\n

It\u2019s hard not to let your heart rule your head when buying your investment property, and even harder when buying a home<\/p>\n

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That \u201cgut feel\u201d isn\u2019t usually perspective- it\u2019s often fear or excitement.<\/p>\n

A while ago Belinda Punshon wrote on Finder.com<\/a> that trusting your gut instincts is a no-go as she explained the common emotional mistakes made by property investors and how to avoid them.<\/p>\n

Here\u2019s what she said\u2026<\/strong><\/p>\n

Trusting your \u201cgut instinct\u201d should never form the basis of a property investment strategy, however, buying a property is an emotionally-charged decision and inevitably there\u2019s room for mistakes.<\/p>\n

Property investors are riddled with emotional barriers including fear, indecisiveness, and procrastination which can lead to poor decision-making.<\/p>\n

Fear of missing out, over-capitalising, pursuing the \u2018perfect property\u2019, blurring your purchase intention and\/or objectives, and renovating to your personal taste are some faults that can lead to a financial downfall in the form of untenanted periods, low rental income, or limited capital gain.<\/p>\n

Here are some emotional blunders and how to avoid them:<\/strong><\/p>\n

1. Fear of missing out<\/span><\/h2>\n

One of the most common emotional mistakes made by investors is listening to the media and thinking that you need to get into the property market quickly, according to Christine Williams, property strategist from Smarter Property Investing.<\/p>\n

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\u201cThe emotional mistake is fear when they\u2019re not doing their numbers or due diligence\u201d, she says.<\/p>\n<\/blockquote>\n

To overcome the fear of missing out, or a sense of impatience, Williams says that investors should know that there will always be another opportunity no matter what time of the cycle you\u00a0buy.<\/p>\n

You need to know how to read the micro and macro environment.<\/strong><\/p>\n

If you can\u2019t find a property that falls within your budget or purchase criteria, consider looking in neighbouring suburbs.<\/p>\n

Patience is a virtue.<\/p>\n

2. Overpaying<\/span><\/h2>\n

Paying too much for a property is a frequent mistake made by property investors who are swayed by sentiment and an overarching sense of optimism.<\/p>\n

If you overcapitalise and borrow more than your budget allows, you can worsen your debt position which can harm your financial wellbeing.<\/p>\n

Investors often don\u2019t understand the financial obligation of property investing and they fail to prepare for the worse-case scenario.<\/strong><\/p>\n

Williams recommends having a cash buffer in place with 3 months of mortgage repayments in an offset account to prepare for a rainy day.<\/p>\n

Evaluate your budget and your offer strategy and be prepared to walk away if the vendor doesn\u2019t accept your offer.<\/p>\n

Although you may be time-poor and it may be tempting to pay 5-10% over your assigned budget, you need to be diligent.<\/p>\n

3. Overbidding at auction<\/span><\/h2>\n

It\u2019s easy to get caught up in the theatrics of a faced-paced auction, and this is the prime environment for desperate buyers to overbid.\"Property<\/p>\n

Most real estate agents will generally want at least 20% more than what was advertised in the price guide so keep this in mind when you\u2019re bidding (again, lower your sense of optimism).<\/p>\n

Before going to auction, have a clear bidding strategy and set your limits.<\/strong><\/p>\n

Overpaying for a property can be an issue particularly when the property isn\u2019t valued as highly by your lender as this could reduce your borrowing power.<\/p>\n

If you can\u2019t eliminate emotion from your bidding, consider getting a family member or a buyer\u2019s agent<\/a> to represent you.<\/strong><\/p>\n

Check out our tips for buying at auction<\/a>.<\/p>\n

4. The great Australian dream mindset<\/span><\/h2>\n

Investors generally have the mindset of buying rather than renting in order to chase the great Australian dream.<\/p>\n

Williams says that many single parents believe they need to provide a family home in an area that is close to a desirable public school, but she maintains that renting can be a better wealth creation strategy.<\/p>\n

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\u201cThey [single parents] don\u2019t have to buy, they can rent in the area they want to live and start investing in other areas that have good capital growth rather than buying a house that no one helps them pay for. They need to escape the great Australian dream\u201d, she says.<\/p>\n<\/blockquote>\n

Williams believes that investors need to shift their way of thinking to consider renting and building wealth through a diversified investment portfolio.<\/p>\n

5. Being too honest<\/span><\/h2>\n

You may feel obliged to disclose as much information as possible to everyone involved in your property search.<\/p>\n

However, this can work against you.\"Discussion<\/p>\n

For instance, you should be selective about what you tell the real estate agent.<\/strong><\/p>\n

If the agent knows your budget or just how much you want the property, they may use tactics to tap into your emotions in order to negotiate a higher price.<\/p>\n

They may tell you that there are other interested buyers who are willing to pay more to create a false sense of competition.<\/p>\n

An agent\u2019s objective is to secure the highest possible price for the seller so be mindful of people\u2019s motives when discussing your purchase intentions.<\/p>\n

6. Becoming emotionally attached<\/span><\/h2>\n

It\u2019s easy to become emotionally invested in a property based on the way it makes you \u2018feel.\u2019<\/p>\n

You may be attracted to the manicured garden or the lush kitchen design.<\/p>\n

If you find that you are emotionally drawn to a property to the point that you are compromising your investment strategy, try to negotiate from a distance.<\/p>\n

Seek independent advice from experts such as an investment or financial planner, an accountant, a buyer\u2019s agent, <\/a>or a conveyancer<\/a>.<\/p>\n

This will help you formulate an unbiased view of the property to decide whether or not you should go ahead with the purchase.<\/p>\n

Due diligence may seem expensive, but it\u2019s worth it.<\/p>\n

7. Combining investment and owner-occupier objectives<\/span><\/h2>\n

Many investors fall into the trap of buying a property that will be an investment now, and a home in the future.<\/p>\n

Blurring your objectives in this way is risky because you may make a decision based on your own lifestyle, and this may not be a good fit for the location or the target tenant. \"39653963_l\"<\/p>\n

Research the demographics of the suburb so that you understand the type of property, the amenities, and the services that the target tenant desires.<\/strong><\/p>\n

For instance, if you discover that 75% of residents are elderly, you may want to consider purchasing an apartment on the ground floor with wheelchair access.<\/p>\n

Alternatively, if you find that the majority of residents are young students, then you may want to ensure that the property is within close proximity to restaurants and bars.<\/p>\n

Separate your investment and owner-occupier objectives by having a clear strategy in place.<\/p>\n

8. Renovating to your personal tastes<\/span><\/h2>\n

Some investors renovate with their personal tastes and preferences in mind, rather than the target tenant.<\/p>\n

This is a frequent problem for competitors on The Block who featured some daring bathroom designs that potentially ruled out a larger pool of prospective buyers.<\/p>\n

Renovating to your personal tastes is problematic because it means that you may find it difficult to attract high-quality tenants.<\/strong><\/p>\n

To increase the sell-ability potential of your home, and to attract the target tenant, de-personalise the space and upgrade areas that are most likely to add value to your home.<\/p>\n

When it comes to colour scheme, furniture, and floor plan Williams says it\u2019s best to go neutral and practical.<\/strong><\/p>\n

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\u201cIf you\u2019ve got mosaic tiles everywhere you\u2019re reducing the amount of tenants that will want to rent the property because it will never feel like home for them because it\u2019s too quirky\u201d, she says.<\/p>\n<\/blockquote>\n

As appliances are tax-deductible and depreciable, they\u2019ll generally need to be replaced every 10 years, so Williams says that you don\u2019t necessarily need to splash out on premium appliances.<\/p>\n

9. Trying to time the market<\/span><\/h2>\n

You should never try to time the market.<\/p>\n

While it\u2019s tempting to feel euphoric about buying when the market is experiencing an upturn, remember that the market could be entering a stability phase which may mean that there is no price growth for a given period of time. \"property<\/p>\n

If you pay a premium for a property that\u2019s headed for a correction, you could forgo equity growth.<\/strong><\/p>\n

Markets are unpredictable and they go through several phases including growth, stability, correction, and recovery.<\/p>\n

Instead of timing the market, ensure that you understand the historical trends of the suburb and research the demand and supply factors of the area to enrich your understanding.<\/p>\n

For instance, you may want to ensure that there are low days on market (DOM) and little change in the asking price for properties as this can indicate that there is strong demand in the area.<\/p>\n

10. Taking your time<\/span><\/h2>\n

While you shouldn\u2019t rush into a purchase, you also shouldn\u2019t take too long to make a decision.<\/p>\n

Many investors \u201cwindow shop\u201d and take time to find the perfect property. \"44332742_l\"<\/p>\n

However, by the time you\u2019re ready to purchase, it may have been snapped up by someone else or you may have run into significant hidden search costs.<\/p>\n

If you\u2019ve done your due diligence and you\u2019ve built a cash buffer (Williams recommends having approximately $10,000 \u2013 $15,000 in an offset account) and you\u2019re comfortable with the return, then you should take the step. In some situations, it can make sense to buy sooner rather than later.<\/p>\n

Williams says that if you wait for the \u201cperfect property\u201d you would have lost two years by the time you\u2019ve found it and then you\u2019ll become more desperate because you\u2019ll realise what you\u2019ve missed out on (capital gain) which could lead to an irrational purchase.<\/p>\n

To overcome indecisiveness, have a plan in place.\u00a0<\/strong><\/p>\n

What is your budget?<\/p>\n

What is your strategy (e.g. positively or negatively geared)?<\/p>\n

What\u2019s your timeline?<\/p>\n

Are you financially ready?<\/p>\n

Having clear answers to these questions will guide your decision-making.<\/p>\n

How to avoid emotional blunders<\/span><\/h2>\n

Creating a diversified portfolio, enlisting professional help, and crunching the numbers are some of the best ways to avoid emotional mistakes as an investor. \"Affordable<\/p>\n

When it comes to diversifying your investment portfolio, Williams says this should include investing in different areas, different dwelling types, and investing in areas that are at different stages of the market cycle.<\/p>\n

When you sell, you\u2019ll have the flexibility to sell the property in the area that\u2019s outperforming the other locations.
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It\u2019s important to think about your exit strategy and to know why you\u2019re buying and how long you want to hold onto the property.<\/p>\n

Williams says that investors should also understand that investing in property is a business and that they should view investing as a business plan.<\/p>\n

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\u201cYou need to know your tax flow you need to know your obligations.\u00a0You need to be on the pulse all the time and know what\u2019s going on\u201d, she says.<\/p>\n<\/blockquote>\n

What emotional characteristics should investors have?<\/span><\/h2>\n

Successful investors need to be good listeners, they need to be modest, non-complacent, and studious according to Williams.<\/p>\n

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\u201cIf their property manager says it could be a good idea to replace the carpet or to repaint in order to get more rent, they need to be prepared to listen to this advice\u201d, she says.<\/p>\n<\/blockquote>\n

Property investors also need to actively seek out information and if they seek professional help and they don\u2019t feel comfortable with the advice, they need to go out and get a second opinion.<\/p>\n

ALSO READ: <\/strong><\/span>How to be more successful in life: 16 Great Tips from Successful Investors<\/a><\/p>\n