You may have heard property investment is a numbers game with very little room for emotion.
It’s a stoic assessment of buy-in price, rental returns and outgoings. A constant analysis of cost-benefit events that lead you along a calculable path to wealth.
While, for the most part, that’s all true I’ve also found it to be a test of mental endurance and agility.
You see, sometimes your most valuable piece of real estate is the space between your ears.
Start building a portfolio with the wrong mindset, and you might actually ruin your chances success faster than any dud asset in a lousy location.
Here’s how mindset matters most when investing in real estate.
Keeping a cool head
The first element of mindset is learning to remove the emotion… but not entirely.
A little emotion can be a helpful thing. There are plenty of 50/50 calls in this game where you need to go with your gut. But, on the whole, you must learn to travel through property investment with a steady approach.
Remember you’re trying to build a bank of assets that will shore up your financial well being into the future. You are not seeking a home to live in forever.
This also means putting aside the emotional whims of negotiation. Low-ball offers and overzealous vendors are all part of the play.
It can be tough dealing with the mental rollercoaster of compromise, especially for new investors.
That’s why having an advisor on hand is invaluable. They will approach your deals without fear and can often discuss transactions with your counterpart sellers and buyers in a logical way that insulates you from the stress.
Mental preparation relates to setting out your goals and determining your path to success right from the start.
You must write down what you want to achieve, look boldly at your available resources, make a fearless assessment of your likely future direction and be realistic about how to realise your wants and needs.
This is also a time to assess your tolerance for risk. It’s similar to understanding your price limit before buying any investment. Well before a situation becomes stressful, make sure you’re aware of your boundaries, triggers and emotional buttons. If you don’t, dealing with the demands of investment acquisition and management may result in sleepless nights.
Establishing safety nets
There are things you can do to reduce the likelihood of mental stress.
For example, always include an investment plan with financial buffers. If you know in advance that servicing a loan will be tight when your property is vacant, then have funds set aside to help you ride out the tough times. This could be in the form of an offset account, drawdown facility or overdraft.
Also – try and budget for the unexpected repair and maintenance. Don’t spend any windfalls. Instead, keep them safe and dry for when a storm of unexpected outgoings hits.
Work with your advisor on stress testing future changes in circumstances. For example, if you are planning a family run the numbers on the reduced household income. Always base your decisions on being able to hold an investment and not put you financially under stress in the future – Know your numbers!
Have a Plan B
Having a fallback position gives you strength and confidence when pursuing what you want.
You could be looking to buy, sell or rent out a property. Each of these processes has a party on the other side of the negotiation who is trying to maximise their outcome at your expense.
That’s why a Plan B is essential. If you’re selling, a bottom-line price is essential. Be prepared to take your property off the market if you can’t achieve the outcome you need. Perhaps you have another asset you can sell if this one can’t find a buyer?
Work out what your Plan B before you kick off plan A. That way you can avoid making any rash decisions you’ll regret later.
Think long term
This is all about riding out the ups and downs of a property market over the course of its price cycle.
During your ownership, there will be market highs and lows. These can range from interest rate drops, to disruptive tenants… and even global pandemics!
Keep your eye on the long horizon. Don’t make a knee jerk decision to offload just because something seems dire. This isn’t the stock market, it’s real estate.
Remember – you will likely be holding this asset for at least a price cycle of seven-to-twelve years, and that will even out any adverse hits to its value or rental return.
Imagine being one of those owners who offloaded their investment in March 2020 fearing the coronavirus would gut the market. These sellers are now watching from the sidelines during one of the most extraordinary property market rebounds in Aussie history.
Have an advisor
Having an experienced advisor on hand is essential for staying calm between the ears.
When things get tough, your advisor can lay out in clear, logical terms what’s happening and why your property portfolio and strategy will prevail.
Having an advisor ensures you also acquire the right sorts of assets at the correct price points and with adequate rent return to keep your household budget safe. An advisor can lead you through the challenges and ensure you stay on track with a plan that will deliver your end goal and help you keep your sanity.
Always review any property location research and investment analysis data, with a professional, QPIA (PIPA Member) qualified & accredited ASPIRE Property Advisor Network Advisor. Never rely on glossy sales brochures or property marketing information, ensuring a property is right for your strategy. Property Investing is about BUYING a property that matches your goals, never be SOLD an investment.
Visit www.aspirenetwork.com.au or call our office to be connected with a Property Investment Advisor on 1300 710 933.