3 common emotional property investment mistakes
While emotions can be great for happiness, love and laughter, they have little benefit for property investment. A buyers' agent will act on insights from their head, not their heart, and if you want to make an informed investment, you should do the same.
However, it is much easier said than done. Purchasing a property can be a tumultuous experience with sharp ups and downs. It does a great job of making use of all your emotions, whether they're confidence and intimidation, optimism and pessimism, or jubilation and desolation.
Purchasing a property can be a tumultuous experience with sharp ups and downs
It certainly doesn't help when you're attempting to get a foot in the door of a hot market, which is exactly what Sydney and Melbourne have presented over the last 18 months.
Figures from the Australian Bureau of Statistics show that the extreme demand for property for in these areas have driven prices to unheard-of heights – Sydney posted a whopping 18.9 per cent of growth in just the 12 months to June 2015. That makes for great news if you already bought a piece of real estate in these areas with your property agent, but not so good if you're in the market for one!
However, CoreLogic RP Data Head of Research Tim Lawless assures that the boom in Sydney has reached its peak, making the market more affordable for prospective buyers.
"Listing numbers are moving higher, providing more choice and taking away some of the urgency that many buyers have been faced with when considering to purchase in this fast-moving housing market," he said.
So, it looks as though the market is cooling (somewhat), meaning it is a good time to purchase a home. But, how can you ensure your emotions don't get in the way? Here are a few common mistakes you should avoid, and how using a property buyers' agent can help:
1. Justifying paying too much just to get on the ladder
If you've been in the market for some time and are sick of being pipped at the post by other investors or buyers, should you simply bite the bullet and pay a higher price than what you budgeted for just to get on the ladder? The short answer is no.
The Reserve Bank of Australia states that the average property market acts on a seven- to 10 -year cycle, meaning you don't need to jump on the bandwagon when real estate transactions are going crazy. Take your time and do your due diligence to ensure that you're paying the right price and not one pumped up by competition.
If you overpay for a property at the peak of its cycle, you're already missing out on potential profits. This is because it is likely that the value will be slow to appreciate over the coming years, given that it has already grown significantly.
Employing the services of a competent buyers' agent can be invaluable when it comes to property investment, as they have a vast network of real estate professionals, who can provide you with access to exclusive private house sales before they even hit the market.
2. Becoming attached
Any emotional attachment should be solely reserved for a home that you're looking at buying to live in. However, you do still need to rein it in. As an investor, you can't let it have any sway at all.
Allowing your 'love at first sight' feeling to cloud your judgement can be dangerous
Vendors and property agents will often stage their homes for that precise reason – to take a hold of your emotions and elicit a sense of belonging and infatuation to the property. Allowing your 'love at first sight' feeling to cloud your judgement can be dangerous, as it could result in you making a rash purchase you will live to regret.
To ensure you're making an informed decision, the Australian Securities and Investment Commission affirms you need to remove your rose-tinted glasses and view the property purely as a money-making enterprise. First and foremost, you should be poring over the numbers and the home's ability to produce profits, both over the short and long term.
Then you will be in a better position to inspect the condition of the property and whether it is suited to the area and prospective tenants.
The benefits of using a skilled and informed buyers' agent cannot be understated in a scenario like this, as they will be able to act as the logical voice of reason. They can tell you when to walk away, protecting you from making a non-profitable financial commitment.
3. Taking the bait for a very cheap property
If you are able to find a property that is unusually cheap, before you rush in and take the bait, you need to determine exactly why it is so affordable compared to its neighbours. Essentially, the question you need to answer is, if it is such a great deal, why hasn't someone else already snapped it up?
It could have serious building problems, damage from a pest infestation or the early signs of one, or even plans from the local council that will negatively affect property prices in the area, such as a new flight path introduced directly overhead.
Your property buyers' agent will have a direct link to a number of inspection professionals to ensure the property you're interested in is structurally sound, in addition to where the area is going in the future.