Everyone, even the wealthiest of the wealthy, deals with fear of failure and losing — it’s an unavoidable emotion, particularly when it comes to money.
It has been written that the critical difference between wealthy and average people is not found in their education, luck, skills, or choice of investments — it’s found in their mindset.
Robert Kiyosaki the author of the classic book “Rich Dad Poor Dad” writes “The real world is simply waiting for you to get rich,”
For most people, fear simply holds them back from investing. With all of the noise and differing opinions out there about property investment, it’s likely that many seeds of doubt have been sown and these “seeds of doubt” have grown in our minds to become fears. The best way to manage fear, and separate myth from fact, is through education, knowledge and practical experience.
Here’s a list of the most common fears that people face when venturing to property investment:
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Fear of Paying Too Much
The saying “buy low and sell high” has been around for a long time.
Many people forget that they are also a buyer and a seller in many situations, trying to get more for their home whilst trying to buy low in the same market is a good example.
Be fair and know the market value before negotiating. Some people get so bogged down in researching, looking for the “perfect deal” that they can’t make a decision to buy any suitable property.
Research is important to know the market parameters, but so is ACTION.
Fear of Buying the Wrong Property
Another concerns is “Am I buying the right property” What if it is the wrong house or the wrong neighbourhood?
This can often be overcome by creating a firm plan and sticking to it. Before purchasing a property, it is best to confirm what you can afford and what you desire to gain from the purchase.
Once your goals are established and you are clear on your strategy, next is to do your research to find a property that has a good potential to increase in capital growth and produce the cash flow to help you achieve those goals. Always consider a property’s impact on your after tax position and build this into your strategy when developing your plan. Not all properties are the same when it comes to tax benefits.
Fear of Selling Agents
Quite often first time buyers or people who have had negative experiences in the property market can be distrustful of the process and the people who facilitate it.
Unfortunately there are a number of investment property promoters that have not done the right thing, they apply pressure, short time frames, control many of the processes and have sold properties in places where people don’t understand the market, then later they find out they were sold an under performing property.This can often be overcome by getting to know the selling agents first, ask to speak with their past clients and use independent services of other professionals, until you find one with whom you are comfortable. Then surround yourself with a good team of Property people (that really know the market), finance broker, accountant, solicitor and property management team. This team will check for your blind spots and ensure your success.
Fear of a Crash or a Bubble
Particularly in the last eight years, the property market has been unstable. People worry that the market, the economy or both may crash. The media plays a big role in this when they constantly highlight specific market changes and then generalise their comments.
Each state and city has a different market and their timing can be completely out of synch to another, like we have seen recently with Sydney and Perth. A lot of this probably wasn’t a common fear a few years back when there seemed to be a shared illusion that prices would always go up in a smooth, continuous line forever.
What can you do about it?
Do more research on a local level, be specific and don’t generalise.
Avoid buying in an area where supply and demand is out of balance. If you see a lot of apartment blocks going up in one central location, oversupply could become an issue and force prices and rents down.
Overall, prices will sometimes fall based on economic factors, like government legislation, the recent APRA changes and lender policies, which are way beyond our individual’s control. If they do then providing your strategy is a long term “buy and hold” and you have monitored your cash flow, then continue to stick to your plan of holding the property and riding through change. Be in control of when to sell your property that best aligns with your goals and strategy.
The property is expensive to maintain
All properties have maintenance and up keeping costs, many homes, particularly older ones have very large maintenance bills.
When you become a property owner, you won’t be able to avoid these ongoing costs. Problems like, the pipes bursting, the roof leaks, the toilet leaks, the drain is blocked, the door handle is broken and there can be no end of maintenance required to keep some properties functioning and livable.
However, there are many things you can do to mitigate and prepare for them:
- Buy a brand new established home.
- Build a new house and land package with a low maintenance design and garden.
- Buy a home that has been well-maintained.
- Buy a home that has recently had major components upgraded or replaced (e.g., new roof, new electrical, new hot water system, new plumbing).
- Regularly maintain your home to prevent small problems from becoming major repairs.
- Engage a professional and competent property manager who does regular property inspections and educates the tenant to report maintenance issues before they become a major repair.
Before buying a property and especially for older ones, also have a building inspection completed before you buy, to avoid buying a money pit.
Missing out on the rising market
“The Fear of missing out”. This is when your emotions are taking over and often resulting in a rash decision.
This can be costly, painful, and with property usually hard/expensive to undo.
When the value of properties keeps going up but you are stuck on the sidelines and missing out on the gains, it can be very frustrating (most often you don’t know how to get started safely).
A better alternative is to slow down and get some professional finance advice to know your limitations and what you can or can’t do now. Once you have this information you can plan a strategy to get started in a safe manner that is a fit for you. Sometimes as frustrating as it is, your money may be out of the market for a while, however you can still be in it by keeping up to date, ready for when the time is right for you.
Not having enough time to find deals
Time is a valuable commodity these days and may people find the top excuses of “I don’t have enough time to invest in property”
The idea of investing in property looks appealing, but where do you find the time to do it safely. It does take time to identify and sniff out those smart investments, even if you do understand the basic principles.
A lot of us are busy with work, managing a family and following through with other commitments. This can be very over whelming when competing against full time professional property investors and developers, who have accumulated a large knowledge base from years of experience.
The best way to keep your dream alive is to align yourself with trusted advisors who have the knowledge and experience. There are many well respected professionals in the industry who are trust worthy and get results. Speak with people who have already accumulated a portfolio of properties and look for the fruit on the trees. Stay away from pressure sales or having to make a fast decision at an event. Don’t take ‘advice’ or ‘tips’ from anyone that has not built a property portfolio.
Low tenant demand in the area
How can you be certain there will be enough renters in the area to justify buying an investment property?
It can be a tense time having a property vacant, no tenant equals no income, interest repayments and expenses still have to be paid. It’s a common fear, especially for first time investors, however there are a few of things you can do to reduce your risk. A quick realestate.com.au search for rental properties in a designated area is a great starting point.
Check other online property sites that advertise homes for rent, search specific suburbs and compare the number of available properties. A high number of properties is a good indication of a possible over supply.
Buy in the right area, one that has a high level of desirability, where people want to live. This doesn’t mean it has to be in an exclusive or expensive area. Do your research, speak with local property managers and find out the rental demand for a suburb. Avoid areas that have a high percentage of rentals.
If this is a strong fear, you don’t want to be chasing high rental returns in more regional areas. Keep in mind the end user for a property and its location, families are unlikely to rent a one bedroom apartment and a single student isn’t the best for a family home. Also consider the demographics of the potential tenant, students mostly have no or very low income and won’t be able to afford high rents.
There are no guarantees a property will be tenanted 100 percent of the time, as there can be a few weeks between change of over of tenants – even if tenants are plentiful, you’re likely to have a few vacant weeks in between.
Using a professional and competent property investment company will minimise vacancies through good tenant selection and property management, avoiding high tenant turnover. Families with children at school are less likely to move on impulse compared to single young professionals. This means a family home could be more suitable for a constant income.
Beware of any “investment marketers” advertising guaranteed rental, whilst this may sound attractive and alleviate immediate fears, generally this has been built into the sale price of the home.
Being Unable To Afford Your Mortgage Payment
A lot of new investors fear overextending their budgets and getting caught in a situation where they won’t be able pay the mortgage. We always recommend that anyone thinking of property investing, need to get their financial affairs in order before investing.
This includes a personal budget so you know beforehand what surplus funds you have available. Organise an appointment with a knowledgeable mortgage broker who has experience with property investment themselves. Have them assess your current home and personal loans (including credit cards) with the view to restructure them (if required) in a way that can reduce your existing repayments. This can free up more funds for investing and increase your borrowing power for a new purchase.
We also recommend having a “buffer” or emergency fund that can be used to cover the unexpected.
In our experience most people under estimate their own financial position and over exaggerate the cost of a well selected investment property. Most people are not sure how to correctly structure their finance or go about obtaining the right finance. Obtaining a loan for investment purposes is very different to a simpler home loan.
A loan for investment involves tax deductibility while a home loan does not.
Investors can also feel embarrassed if they are denied a loan the first time they make an application. This is why we recommend using a mortgage broker for an investment loan and not going direct to one lender, there’s more than one bank out there.
When considering an investment property, you need to think differently to that of your home loan. With your home loan you are paying the full mortgage repayment of principal and interest, maintenance, insurance, council rates etc. from your after tax income, there is no tax deductions for personal use that can help offset your costs.
An investment property has the tenant’s rent as income to support the interest only repayments and cover the other costs, these are paid for with the rental income before tax. You can also take advantage of the tax deduction of depreciation on the building, fixtures, fittings and appliances, which can vary depending on the age of the property. This is one of many reasons why a new home can make property investment more affordable. Also, make sure you have sufficient health, life, income and other risk insurances before you buy. Unexpected medical bills and personal injury are a common source of financial uncertainty.
However, so many of us fail to accumulate wealth simply because of our fears and doubts.
Robert mentions, “The primary difference between a rich person and a poor person is how they manage fear”
“But it’s not having fear that is the problem,” explains Robert. “It’s how you handle fear. It’s how you handle losing. It’s how you handle failure that makes the difference in one’s life.”
Self-made millionaire and author of “How Rich People Think” Steve Siebold writes, “The biggest thing holding back most people from striking it big are their thoughts, beliefs and philosophies about money”.
Rich people have learnt to manage these fears by gathering good information, acting on it, using real estate to further grow their wealth and provide income.
So if you could find a property to invest in that ticks all your boxes, would you go for it?
If the answer is yes and you are open to it, we suggest a good start would be for you to speak with us today – having a friendly chat could be all you need to get started in the right direction.
Call: +61 8 7071 8000
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