You know that property is a great way to create wealth over the medium to long term. You have family and friends that have done it. There are two types of buyers; analytical and emotional. You either buy on the numbers or on emotion. To complicate this further couples buying a property often have one partner who is analytical and the other is an emotional buyer. This happens more often than you think because opposites attract.
So we have different types of buyers but what we all have in common is we either buy through fear (fear of missing out aka FOMO) or greed; wanting to outperform the rest of the market. These emotions often cause us to make irrational decisions or no decision at all despite our intelligence.
There are three lanes for property investment;
the sidewalk – below market returns
the steady lane – market returns; and
the fast lane – above market returns
Through our emotions we often end up in fast lane, crash and then end up on the sidewalk broken, wondering what happened, promising ourselves to never let it happen again. This can happen through greed for example when we don’t want to accept market returns. Why get a market return like everyone else when I can be savvy and get a much higher rate? It cant be that hard right? The fear of missing out can also lead us to the fast lane when we follow someone we know who has jumped into a deal that sounds great and often with very little homework. The fear of making a mistake on the other hand will automatically lead us to the sidewalk where the real price is the opportunity cost of what you should have purchased years ago. The result is a prolonged retirement. Screw that.
Whether you are analytical, emotion or both (couples) it is paramount that you get in the correct driving lane with property investment. If it’s your first investment property put on your L plates and keep in the steady lane – the left hand side of the road in Australia. If you stick to the speed limit you will receive long-term growth rates for property of 7%+ if you keep to capital city areas. That’s property prices doubling every 10 years.
If you already own an investment property or two then you can leave your P plates on for a little while longer and do some overtaking every now and then by buying a dual occupancy property for example and creating some additional equity on top of the normal market growth.
Been on your P plates for a while? Well you are probably ready for the fast lane now and ready to burn some rubber. Small developments are now on your radar. But be careful when in the fast lane. You need to make sure you have the time on your hands to stay in this lane. Take your eyes off the road and you will be back on the sidewalk before you know it. Undertaking more sophisticated deals requires more homework, development planning and marketing, not for the novice or time poor property investor. The fast lane is best for full-time property investors.
Just because you bought in Sydney or Melbourne 5 years ago does not qualify you as a property genius. Leave your P plates on. You bought a property and the market went up; you probably just got lucky. Cashed up and on a high income? This doesn’t entitle you to the fast lane automatically. In fact these people have more to lose and should definitely stay in the steady lane. You are obviously good at something sitting on a pile of cash or being on a high income so stick to it. This is the equivalent of going to the casino just because you have a lot of money. Everyone wants to drive in the fast lane. You’re only kidding yourself unless you have the experience and time. Yes I know it’s boring in the steady lane but being stuck on the sidewalk is more boring and embarrassing.
The reality is that most of us should stay in the steady lane and be heavily rewarded for saving yourself from you.