There are plenty of barriers that seemingly prevent everyday Australians from taking the plunge. Some are obvious, some are subtle – so review the list below and see if any jump out at you as the reason why your investment journey has stalled (or possibly failed to even get started).
We fall victim to our emotions
We are all human and we all fall victim to our own emotions. Two of the most common emotions that fuel our desire to invest are greed and fear and they both have the ability to derail the investment process.
Quite often people are afraid to invest because they don’t understand the market, the process or they have a fear of failure. And buying an investment property is not like playing the lotto – it is not a $20 investment that can be easily written off if you don’t hit the jackpot – usually there are hundreds of thousands of dollars involved and people are wary to invest when they will be liable for such a large amount of money.
For those who do invest, the fear doesn’t go away the minute you sign on the dotted line. Investors are often fearful of what the market is doing, if they are making any money, if they are achieving the maximum rent, if they have found good tenants and when to sell the property.
Gavin Hegney, one of Australia’s most respected Independent Analysts and property commentators, gave a presentation at our recent Investment Insiders property event and made some very interesting observations about the emotional cycle of property investing and how it can influence the decisions (and ultimately the success) of investors. Click here to see a diagram of this cycle
Gavin pointed out that when you are an investor your biggest challenge is to understand your fears and emotions and you mustn’t let fear do the thinking for you because it is how so many people get themselves into financial hardship.
He said that ‘Euphoria’ is the point of maximum risk when everyone is getting into the market so we feel most comfortable to do it, but it is also exactly the wrong time to be investing. Greed causes people to buy after prices have already started to rise and fear makes people sell after prices have started to fall.
You will be a good investor if you don’t fall victim to your emotions and your fears, and you don’t let your emotions drive your investment decisions.
Fear of being the first
Just as humans fall victim to our emotions, it is also a common trait of human nature not to want to be the first to take the leap, or to be the ‘leader of the pack’.
For so many people, being the first out of their group of friends to invest can be a daunting prospect and it can be particularly fearsome to invest during a market downturn or when others aren’t. It is human nature for people to feel more comfortable just to jump on the bandwagon (rather than be the driver) and generally people feel comfortable when they can all invest together.
As Gavin Hegney pointed out with his ‘emotional investment cycle’ diagram, when everyone is getting into the market is when we feel most comfortable to do it, but it is also exactly the wrong time to be investing. Everyone feels comfortable investing together but sometimes it is better to be a leader, not a follower.
Lack of Knowledge
For so many people, a perceived ‘lack of knowledge’ or ‘fear of the unknown’ is another major issue that causes a huge road block in their investment journey. One of the benefits of property investment is that anyone can do it but this is a perceived negative too.
For your average person, they have limited understanding of the property market and a fear of the unknown. They don’t know where to invest, when to invest, how much to invest or what to buy and this is often fuelled by negative market sentiment or the media. They fear their lack of knowledge will be their downfall or cause them to make a massive mistake so the easiest option is to do nothing.
In the famous words of Mark Twain, ‘the secret to getting ahead is getting started’ but often this is the hardest step to take.
Jack of all trades, master of none
Potential property investors are also frequently stumped by the perception that they should be investing in everything to diversify their portfolio, including property and shares. This often leads to a lack of progress because focus is diverted and there are too many options to consider.
It is easy for investors to fall victim to being a ‘jack of all trades, master of none’ when it is perfectly acceptable to be the master of one, and to do it well. Even the most experienced property investors will tell you that they are still continuing to learn after 40+ years in the industry so there is nothing wrong with focusing your attention on property and being the best property investor you can be.
This doesn’t mean you can’t still dabble with shares; you just don’t need to be an expert about everything, all of the time.
Too proud to ask for help
Just as many investors are hindered by their own perceived lack of knowledge or fear of the unknown, many potential investors are too proud to do anything about it and to ask for help from the experts. There are so many professionals in the industry who are ready and willing to help investors cover all aspects of property investment including education, planning, finance, negotiation, building, property management, accounting and more yet many people see it as a weakness (or a blow to their ego) to ask for help.
We are all happy to call a plumber, an electrician or to go and see the doctor if we need help – so where is the problem in seeking advice from investment professionals? In many instances, having a voice of reason (or an expert) standing beside you who is able to dispense valuable and logical advice when your emotions get the better of you is worth its weight in gold.
Although emotions will sometimes get the better of the experts too, often two heads are better than one. In some instances the advice may cost you a little more, but it is money well spent – just make sure you never appoint the services of a new or inexperienced advisor. The blind leading the blind is a recipe for disaster.
Lack of focus
For many potential or current investors, a lack of focus or inability to look at the bigger picture definitely hinders their ability to secure financial security through property. Many people want to invest but don’t make the time to start the process. They don’t make the time to attend the seminars, do their research or talk to the experts – it doesn’t take much time but there is always an excuse or a reason to delay. Every day delayed is an opportunity lost. Property investment is a long term strategy and the best time to start is yesterday.
Similarly, it is surprising how many investors buy their first investment property and fail to go any further. There are huge opportunities to be found by reinvesting their equity and expanding their portfolio but so many investors fail to look at the bigger picture. They already own an investment property so in their eyes they can ‘tick that box’ but what they fail to see is that their financial future could be so much stronger if they had remained focused.
Worse still, there are also investors who are guilty of failing to pay attention to the investments that they already have. Poor management and lack of attention means their property is not generating the returns it should be, robbing them of greater financial security in the longer term.
Don’t learn from mistakes
Everyone makes mistakes, including investors. When Gavin Hegney was on stage last month he admitted to making several throughout his property investment career so even the best and most experienced do it – but the key is to learn from them.
Unfortunately for many investors it is a case of ‘once bitten, twice shy’ and if they have made a mistake in the past or experienced a property investment failure, they are too afraid to try again. It is important to remember that some of life’s best lessons are learned the hard way so don’t be afraid to get back on the horse. It is the only way you will be able to gallop ahead in life.
Inability to recognise market cycles
As raised earlier, many investors are afraid to invest because they fear the current property cycle and don’t believe it is a ‘good time to invest’. Nobody has a crystal ball so you aren’t expected to be able to predict the future but it is important to be able to understand and recognise where the market is at and use it to your advantage.
Gavin Hegney gave a great piece of advice during his presentation at Investor Insiders and said to watch sales volumes to see where the market is at. They turn up before a market turns up and they turn down before a market turns down. You don’t buy in the peak of the market and you don’t sell at the bottom.
And as we always say at Investor Assist, there are solid opportunities to be found in every market, you just need to know what to look for.
If you find fear is hindering your ability to invest in property and you would like some expert assistance, you can contact a Property Investment Expert from Investor Assist right here
Alternatively, if you would like to view the full presentation from Gavin Hegney from the Investment Insiders event recently hosted by Investor Assist, the video is now available for you to view here