We’ve had millions of years of evolution and seen the development of abstract thought and critical thinking.
While it would be wonderful to believe the choices we make are the result of rational analysis of the available products, we still fall back heavily on emotions when making decisions.
Emotions invoked from previous, related experiences set values on the options we are considering, creating preferences and cementing the decisions we make. For example, most of us have an emotional connection with brand-name products, even though many of the products we buy are available as generic brands and have exactly the same ingredients for a lower cost.
This explains why a lot of investors are very keen to find an investment property they like emotionally, and will look for designs and features that mirror their own home and in an area with which they are familiar. There’s a great deal of comfort to be found in knowing a neighbourhood well: where to find the best fair trade coffee and the tastiest quinoa salad, the quickest route to the shopping centre and the most convenient places to park.
We all tend to love our own little corner of the world, but when it comes to property investment the most effective investors understand they shouldn’t become a slave to their emotions. Investing in property is about creating wealth using property as a tool to achieve a financial goal, not about a particular property in your suburb or the suburb next to it.
You may well be daunted by the thought of investing in an area about which you know nothing, but you could really limit your investment prospects if you don’t open your eyes to other possibilities. Usually ― in fact, more often than not ― the best investment opportunities can be found outside your own locale. Invest where the opportunities are, not in your local area because you understand it.
Property markets are cyclical, and the optimum time to buy in any cycle is at the bottom of the market: in the crash or recovery period, before the upswing begins. By investing in locations outside your own you can take advantage of those cycles that are entering the right phase of growth. You should never buy at the top of a hot market, which could very well be where your local property market is placed and thus offering very limited prospects for future growth.
Diversifying your property portfolio by purchasing property across a range of locations is also critical, as it will decrease your risk exposure. A range of different property types in varied markets will spread your opportunity for growth across markets, so that at any one time you should be benefiting from an upswing in values in at least one location.
Be wary, also, of getting totally caught up with the schematics of an investment property, thinking you would love it if only the walls were painted a peach colour and there was an extra window in the dining room. Your preferences don’t matter; they are bound to be counter to what a prospective tenant will like. Ensuring the property you are purchasing meets local market demand will strengthen your position in terms of rental yield and capital growth.
A successful (and usually passive) investor won’t know the names of their tenants and will rarely if ever visit their investment properties. What they will have is a desire to create wealth . . . and fantastic property managers to make their investments worthwhile, hands off and profitable.
When buying shares, savvy investors will research the quality of the stock they intend to buy and use an experienced broker. If they barrelled ahead and bought shares without understanding the intricacies and traps of the share market it would end in tears. The same goes for investment property: you need to consider the full spectrum of opportunity and rely on data and market research from a trusted professional, who can help you navigate your options.