A thread about property auctions recently appeared on the forum which prompted a very interesting discussion about different types of property buyers. The fact that different types of property buyers can look at real estate from different angles, from a different timescale and a very different perspective can create difficult situations for those looking to invest in real estate.
The Simple fact is that if somebody is buying a property based upon emotion then very often they will lose perspective, they will pay a full price and are potentially buying a property without the intention of selling further down the line.
Keep perspective when investing
We have all seen properties which look outstanding, the best in the area and on paper they have enormous potential for growth in the longer term. Sometimes we can persuade ourselves that just a few percentage points over the “fair value” is neither here nor there and we will be compensated further down the line. However, if you’re looking at a career in real estate investment you need to keep your wits about you, you need to remain focused and you need to look at the cold hard facts.
The minute that you start wavering from your long-term investment strategy is the moment when you are potentially losing control of your emotions.
Do the figures add up?
How many times have you heard of property investors going to auctions or traditional sale days and paying over the odds for a property asset? It is a common occurrence because property markets, like all other investment markets, are controlled by fear and greed, the fear of missing out and the greed of squeezing every last dollar out of your investment. However, we can only estimate how many people sit back in the cold light of day having been chased up on a property they have acquired.
While markets do vary around the world, rental yields are seen as the traditional barometer of value when looking at any piece of real estate. How much income will your investment asset bring in? What is the financial cost/loss in income associated with acquiring a property? These are questions which you need to ask yourself to see whether a property is able to pay for itself.
Seeing investments as boxes
Many real estate investors see each and every property they buy simply as a “box” which they acquire, retain or move on at some point. The value of the “box” will obviously vary from time to time but this method ensures that you have no emotional attachment and given the opportunity you would have no problems disposing of the asset. There will be some “boxes” that you retain in the longer term, some you will be forced to sell at a loss and others which you can trade to increase your financial strength.
Those who challenge property investors driven by some kind of emotional attachment/goal are very much playing with fire. The value of any property could have a significant variation in the eyes of a cold hearted investor and somebody looking for their dream home. Do not fall into the trap of getting involved in a bidding war.