June 26, 2018 – Article by Paul Sonntag (Reading time: 6 mins)
The Investor Mindset
Buying an investment property based on emotions is one of the silliest things you can do. All buying processes involve an element of emotions. But it is the property investor who buys based on these emotional impulses that will be lining themselves up for problems in the future. The mindset of an investor is the opposite, using logic, research and the numbers to make their buying decisions. No deliberation, no hesitation and no regrets. We like working with this type of property buyer who has the investor mindset.
We recently found a phenomenal established property for a client that had everything we were looking for…and something extra. My SMSF investor clients wanted a property that was going to offer strong long-term capital growth. Plus boast a reasonable yield in the meantime (4%p.a.+ would be “reasonable” in my eyes), all within their budget of $480,000. Capital growth is generated through good fundamentals and scarcity. As a minimum we are talking a quiet street location, good access to amenities, and the minimum offerings for the area’s rental market. Therefore don’t buy a two-bedroom house in a family area. Actually don’t buy a two-bedroom house period.
We found a three-bedroom character home on 607sqm of land with a renovated kitchen, new roof, and in a quiet street. It is a 300m walk to a train station and town-centre filled with cafes, restaurants, and shops. Perfect. The kicker on this one is that it is also subdividable so could easily be sold to a property developer in years to come. I sent the details of this property (our photos, video walk-through, pros and cons) to the client at 3.17pm. The client opened the email at 4.01pm and emailed back to me at 4.09m with “Looks good Paul. Let’s make an offer”.
We secured the home the next day for $450,000 after negotiations. Done and taken off the market. If my clients had hesitated the property would have been sold to someone else, and probably at a higher price. With all of the necessary information in front of you, as an investor you should be able to act quickly and clinically on the best option for you. Overthinking things or procrastinating can be the issue for many investors. Unsure whether they are making the right decision. Over time this can become ingrained into the investor’s approach. They then end up doing either of two things that both have pretty crappy outcomes.
The first outcome is that potential investors continue to do nothing. They over-analyse everything so much that they cannot make a decision. This is coined as “paralysis by analysis”. Too much analysing and not enough action. These procrastinators sit back and research markets and properties to microscopic levels. Knit-picking reasons why they shouldn’t invest and feeling relief when they say “no” so they can move onto the next option. As time goes on their hard-earned savings continue to grow. This nest egg that has taken years to create is even more important now, needing more protection. So what does that mean? Even more critiquing and more research, to make sure their “next decision is the perfect one”. But if can save $30,000 a year but the property that you should have bought a year ago would have gone up $50,000 then you have lost money.
Research and analysis is imperative in making a good buying decision, it is the corner-stone to what we do as investment buyers agents. But when it continually inhibits you from taking action, then you need to weigh up the opportunity costs of these decisions over time.
The second outcome is much more volatile. I meet a lot of investors who get impatient. Impatient with themselves really. They are frustrated that they haven’t bought a property yet so feel uneasy and regretful. Throw in some jealousy towards their friends and family who have acted far sooner and fared far better thanks to the property market, and you have a cashed-up pressure cooker. These investors will be lured in by the quick-fix, the get-rich-quick schemes. Bitcoin was probably very appealing to them late last year. They have saved up their deposit over a long time, though don’t realise that one wrong move can mean they lose these funds for ever. Investment consultants spruiking new investment properties love these people. Easily swayed when promised the world, the regret and fear of missing out will push them to buy quickly…and buy poorly.
Kenny Rogers said it perfectly in The Gambler. Property investors need to “know when to hold ’em, and know when to fold ’em, know when to walk away and when to run”. Knowing when to hold off and not purchase is more important than saying “yes” for the sake of it. That “yes” needs to come from careful analysis and research, a journey of learning and sacrifice, and a desire to succeed. Correct property investing is not about buying quickly for the sake of it. Getting your first investment right is from doing your homework so when the right opportunity does present itself you are in a position to say “yes” quickly and beat the rest of the market.
Realise that success from real estate is a long-term play. In any element of life, the faster people make their wealth is usually a sign of how quickly they can also lose it (similar to the equation of the amount of money people spend on their wedding has an inverse relationship to the length of time that marriage will last). Building solid wealth over time through property is the name of the game, and the ideal first step is by creating a foundation of great properties as your first investments. Do your research, learn as much as you can, and reach out to the experts in the field. With the right knowledge, experience and advice we can all make prompt decisions with an investor mindset like the best in the game. Not getting caught in the trap of impulsive decisions is the first step.