Managing emotions when it comes to investing in Property is critical. It is very common for investors to ‘fall in love’ with a particular property, see past its flaws, and dive in based on a feeling, rather than on the facts. As property is such a large investment, this can prove to be a very expensive mistake.
There are many reasons why people want to buy investment property – and we need to be sure, like any big decision – that we are doing it for the right reasons, and be honest with ourselves what those reasons are. Managing emotions when it comes to large investments is something every investor needs to be very conscious of.
Often, people want to invest in property as a way to generate and accumulate wealth – usually with the goal to become financially secure and independent. If this really is the case, and it is about numbers, then of course removing emotions from purchasing decisions is incredibly important. If you have determined that you are property investing as a business – then following the data, rather than your heart, will mean you have the best chance of achieving your goal.
If, on the other hand, you are looking to invest in a second or third property as a lifestyle decision, such as the purchasing of a holiday home in an area you ‘like’ – then the big risk here is ignoring the data, and regretting it from a financial perspective for years to come.
It’s a very common mistake for people to buy in holiday areas they have enjoyed – they feel familiar with the surroundings, and like the area – so they invest with blinkers on, hoping they can sub-lease the property outside of the two or three weeks a year they intend to use it themselves.
The problem here is that usually these holiday locations are indeed holiday locations. This means that very often they are seasonal areas outside of major economic zones that even if popular during peak periods, can be very difficult to rent well at other times of the year.
There is a very good chance they don’t stack up when it comes to economic growth drivers.
For one thing, are they growing quickly and will continue to grow sustainably through the intended investment period? Fundamentals that a professional buyers advocate would look for will very often be missing – so the chances of getting the best possible return from these types of investments is very low.
Another big risk when it comes to managing emotions, is being determined to buy near your home.
Often people come to us with this very idea – and when we ask, ‘why do you think you want to invest near to your existing property?’ they answer with ‘so we can keep an eye on it’, or ‘because we know the area and feel more comfortable about it being close to us’. If you are not managing emotions, it can mean foregoing the best investment – as you have a fixed idea about where you want to buy, regardless of the data. And why good property managers exist.
You don’t need to buy near your existing property to feel ‘safe’ or ‘secure’ about the property. It is far safer to buy in an area that the fundamentals show to be the best investment – and when you are doing well from the property, you’ll be very glad that you kept an open mind in terms of location.
We also often see investors looking for attributes in a property that they want to have in their own home – buying investment properties that they themselves would like to live in. The issue here of course, is that unless your ideal tenant is in the same demographic as you, wants the same area and has the same idea as you, then you are purchasing for yourself, and not for the market.
To maximise rental returns means buying and potentially renovating or improving a property to suit the target market of the area in which you buy – not to suit what you yourself want to live in.
Students and young people are looking for a very different set up, location, lifestyle and layout to the average retiree. Different areas attract different styles and types of tenants. What you like isn’t the consideration – what the ideal tenant does – very much is.
The key point here is you don’t have to ‘like’ the property for it to be the right investment for you. And it is a huge risk if one of your key drivers is buying what you ‘like’ – rather than what you ‘should’.
If your motive is to make money and succeed as an investor, then you need to remove emotion from the equation to give yourself the very best chance of success.
In managing emotions, and keeping an open mind to location, style and to what improvements should be made, an investor is in the best possible mindset to make the best decision for their future. A good buyer’s agent, who knows exactly what attributes to look for, and understands the real growth drivers, including these very common emotional issues, can be a great help when it comes to helping you make statistically sound, rational decisions, and to not making the mistake of using your heart rather than your head when it comes to your key investments.