How To Overcome Fear, Uncertainty and Doubt As A Property Investor

Property investment has proven to be one of the most successful vehicles for building wealth, freedom and security over the long term.

And yet many would-be investors are derailed from their dreams by Fear, Uncertainty and Doubt.  In other words, it’s emotions that get the better of them, rather than the facts and figures.

Aside from relatively infrequent periods of runaway price growth, property prices usually move relatively slowly and steadily.   They may even flatline for several years, even if you’ve bought well.

At times like these, investors may give in to Fear, Uncertainty and Doubt and sell up (or delay their next purchase “until the market improves”).    Almost invariably, these delays cost investors far more than they save.

So while there’s nothing wrong with healthy skepticism and thorough due diligence when it comes to property investment, Fear, Uncertainty and Doubt should never prevent you from realising your goals.

So what are the major emotional blocks that afflict investors, and how do you overcome them?

1. What if I buy the wrong property?

Buying the “wrong property” is one of the primary fears that face new and even experienced investors.

But what does the wrong property mean?  It means a property that underperforms the market, or is too costly or time consuming for the investor to hold.  This may happen for a number of reasons:

• The property is in the wrong location (e.g. a rural area with little employment demand, or over-reliance on a small number of industries)
• The property is the wrong type for the location (e.g. a studio apartment in an area dominated by families with pets)
• There is insufficient rental demand to keep the property tenanted at least 98% of the time
• Maintenance costs are too high (e.g. as a result of buying an old or run-down property)
• The property was too expensive for the investor in the first place

The solution to most of the above problems lies is doing your research:

• Invest in a location where demand outstrips supply, with population growth and strong employment trends
• Investigate rental demand for specific property types within the suburb to ensure that what you’re buying is in demand
• If you want to avoid maintenance, buy high quality new property (or at the very least, established property with solid construction and low maintenance requirements)
• Don’t buy a property that will “stretch” you too much if circumstances change (e.g. an interest rate rise).

In summary, the antidote is to do your research (or get a custom property strategy created for you) that will ensure you’re buying a property that ticks all the right boxes.

Buying the wrong property is a completely avoidable mistake!

2. What if I can’t afford the repayments?

Overcoming this mental obstacle is as simple as getting your financial ducks in a row before you begin.

Buying in a suburb with a steady and consistent flow of rental demand is crucial.  Having a long line of tenants lining up to rent your property is the first step to ensuring you have strong cash flow coming in.

The other side of the coin is affordability.   Don’t buy a property that over-extends you financially.   It’s more important to be prospering in 10 or 20 years, than it is to buy something inappropriately expensive now.

It is now possible to model your net cash flow from any property with remarkable precision and clarity — to give you peace of mind that what you are buying is completely affordable, now and in the future.  Ask us if you’d like to engage us to create these models for you.

3. What happens if interest rates rise?

Interest rates are at historically low levels. The question is not if rates will go up, it is when. So this “fear” is actually something you know is going to happen. All you need to do is build this into your plan.  Here are some ideas:

• Choose to fix the interest rate of some or part of your investment loan for up to 5 years to give you added certainty
• If it makes sense, consider borrowing via a Principal and Interest loan (rather than Interest Only).   This may increase your repayments and reduce tax deductible interest slightly, but it does give you the peace of mind of a steadily reducing loan balance.
• Finally, leave a buffer in place.  Your investment property portfolio should remain comfortable to hold at much higher interest rates than we’re seeing now.

4. What if I have tenancy troubles?

There are a few categories of tenancy troubles.  Let’s look at each one:

• You can’t find a tenant: most of the battle here is to pick a property with strong and consistent rental demand, close to schools, transport and infrastructure.  This will ensure a steady demand for tenants and ensure your property is never vacant for long.  Good properties have a vacancy rate of 2% or less (1 week per year).
• You don’t get as much rent as you thought you would: again, prevention is better than cure.  Conducting a series of rental appraisals from reputable local rental agents should give you a good idea of what to expect, rent-wise.
• You get a “tenant from hell”: while this rarely happens if you buy well, it’s still a possibility.  Low cost Landlord Insurance is available, which protects you financially should something go awry. Make sure your landlord insurance policy covers you for things like loss of rent and the cost to repair any damage  – either accidental or intentional.

When it comes to tenants, prevention is always better than cure. An experienced property manager who can qualify your tenants and manage the asset on your behalf is the best way to silence this ‘what if?’.

5. What if I lose money?

It can happen. And if it does, you get back on the horse, grow from the experience and regain what you lost, with interest. But yet again, the key is prevention.

Solid data-driven research is now available to help you buy in an up-and-coming suburb, in an area with solid and consistent rental demand.

It’s also possible to model current and future tax savings, which can be considerable (for example, many of our investor clients save at least $100,000 in tax per property over the first decade alone).

For non investors, these numbers may seem surprising or staggering, but for the initiated they are normal.

There really isn’t any excuse to buy property without doing your homework, or engaging an advisor to do this analysis on your behalf.

But let’s say for whatever reason, you were to find yourself with an underperforming property down the track.

If you genuinely believe that your buying assumptions were wrong and the property is unlikely to perform in the future, then it may be wise to divest (sell) and purchase something that will perform.  There is no point hanging on to a “lemon”.

The point is that if you don’t take action toward creating the financial future you desire, then there is an almost 100% chance that you WILL be worse off than you would like in retirement.

But if you do plan, then there is a SLIGHT risk that you’ll make a mistake somewhere.  Hopefully you won’t, but even if you do, know that there is always time to learn and re-align.

6. What if it’s a scam?

Once again, effective AND independent research will eliminate this concern.

• Is your property advisor pushy?
• Are they trying to ram a single product down your throat, regardless of your needs?
• Is there high pressure to sign on the dotted line?
• Do they resist your attempts to ask questions, verify information or conduct your own due diligence?
• Do they force you to use only allied professionals they recommend, rather than using your preferred choices?
• Are they the subject of negative client reviews?

Any of these things is an immediate red flag.  If your gut tells you that you are speaking with a shark, you probably are.  Run a mile and go to someone whom you find transparent and reputable.

7. What if Global Financial Crisis 2.0 hits?

Some people fear a major financial meltdown, and indeed this scenario seems to be wheeled out by pundits and journalists every couple of years.

Hey, it could happen.  But if history is our guide, global financial corrections are usually followed by a period of rebirth and growth.

There is no way of predicting when a global shock might happen. And even if it did, all major asset classes would be more-or-less equally affected.

There would be few safe harbours apart from gold and precious metals (which tend to perform very poorly as investments at almost all other times).

So the key again is to build a portfolio that is resilient to risks and shocks.   Even stuffing all your cash under your mattress has risks.   But it is better to plan for growth, with risk mitigation in place, rather than plan for the crisis that never occurs.

3 Practical Steps To Move Past Fear

Changing your thinking is critical to success, but just as important is taking practical steps to ensure you get the basic fundamentals of investing right.

1. Know your time horizon

This is useful because it can take the panic out of factors like potential interest rate rises and natural market fluctuations that force property values up, down and sideways at various times.

If you intend to invest for 20+ years for instance, you don’t need to obsess about each quarter of a percent interest rate movement in the present moment.

All you need to do is buy well and hold on for the long term and let the tax savings, rental income and capital gains work their magic.

2. Do your research

Australia’s population has already surpassed 25 million, and is estimated to hit 30 million by 2030.   That’s a 25% increase over 2015 levels. And all those new people have to live somewhere.

That fact in itself puts a lot of demand underneath the Australian property market. But there are also research tools that allow you to get much more specific, such as the DSR Score (Demand to Supply Ratio).

The DSR measures the gap in supply and demand for units and houses in any given location, comparing 15,000 suburbs against eight leading supply-demand indicators. The higher the score (between 0 and 100, with 50 representing a market in balance), the more likely the area is to achieve decent price growth.

Other factors to consider when researching optimal locations include:

1.         Diversity of labour opportunities, such as those you find closer to large cities.

2.         Obtaining sworn valuations so you know you’re not paying more than market value and sacrificing potential returns at point of purchase.

3.         Vacancy rates and rental returns for the suburb to ensure you can keep it occupied and generating cashflow.

4.         A low maintenance property that’s not going to eat up your income on costly repairs and upkeep.

3. Allow a buffer 

Importantly, with any cash flow forecasting, make sure you allow for some “slack” in your assumptions. What if interest rates go up? What if you don’t achieve the rent you expect?

Allowing a buffer in our assumptions gives you a greater “sleep at night” factor for investors.

But the biggest thing to fear as an investor may be fear itself.

Because fear can paralyse you into inaction, which means you never move beyond your comfort zone to where the most personal and financial growth lies.

Taking the next step

The first step is to replace fear with strong focus and clarity about your goals.

Goals get you focused ahead and on the future — not just on vague “what ifs” that will probably never happen anyway.

Next, ensure you get access to solid research, and interpret it the right way.   Some investors like to do this themselves. There’s nothing wrong with this, but it does take a long time to analyse the market data and trends, as well as gain expertise and advice in all the relevant areas: ownership structures, tax minimisation, suburb selection, property research, contract negotiation and more..

For most busy career professionals and business owners, there simply is not enough time in the day to be an expert both at what you do, and in property research and selection.  (Even if you are an expert, it takes a lot of TIME to actually get it done).

That’s where we may be able to help.  The first step is to request a Free Investment Property Strategy Session, during which we’ll seek to understand your situation and goals.

Based on that discussion, if we both feel there is a fit, we can work together to create a safe and secure property investment plan:

We’ll do the hard work to formulate your strategy, conduct due diligence and financial modeling on appropriate property(s), then implement your plan once you’re completely happy for us to do so.

Whatever you do, don’t do nothing.  Don’t succumb to Fear, Uncertainty and Doubt, and don’t simply “wait another year”.   You and your family’s financial future depends on it!