5 common mistakes investors make during a property downturn
Originally published in 2019.
It is no secret, 2019 is shaping up to be an interesting year with the value of many properties still falling. The current market is causing concern and stress for many investors who’ve never invested in a downturn.
In reality the market is just doing what it always does – moving in cycles, meaning once this decline is over it will continue to do what it always does, and the value of well located properties will keep increasing.
Overall, the Australian property market is driven by owner occupiers who make up around 70% of all transactions. However, property booms are driven by investors and their F.O.M.O (Fear of Missing Out). Similarly, property downturns are intensified by investors fear just like now when many are staying out of the market driven by F.O.B.E (Fear of Buying Early).
And if history repeats itself, and it most likely will, here are 5 common mistakes many investors will make because of their emotions:
1: NOT REALLY UNDERSTANDING THE NATURE OF THE PROPERTY CYCLE
Many beginning investors don’t realise that in every property cycle there will be as many years of flat or falling property values as there will be years of rising values. In time they’ll learn that, at least in our capital cities, all market declines are temporary while the long-term increase in property values is permanent.
2: NOT ADHERING TO THEIR PROPERTY STRATEGY
When tempted to jump ship and sell up, investors should focus on why they initially invested in property, rather than worrying about the temporary declines or the unpredictability of the property markets.
3: CHANGING YOUR INVESTMENT STRATEGY
Too many investors, are making 30 year decisions based on last 30 minute news rather than on the fundamentals. If your aim is to gain financial freedom this is not the right time to change a proven strategy. Strategic investors do what’s always worked and don’t look for what’s working now. They buy investment grade properties that will be in continuous demand by both owner occupiers and investors in the long term, rather looking for a short term fix in the next hot spot.
4: TRYING TO TIME THE MARKET
Sophisticated investors recognise that even the experts cant time the markets. Yet some inexperienced investors want to sell up now and get back into the market again when property values pick up. Problem is most won’t be able to pick the right time and just end up ‘selling low and buying high’ which is the opposite of what they hoped to achieve.
5: TAKING ADVICE FROM THE WRONG PEOPLE
In Australia we seem to have 25 million property experts. While everyone seems to have an opinion on what’s going on what’s going to happen to our property markets, the problem is nobody really knows. Even the media reports are confusing and contradictory.
