There are few investments more emotionally charged than bricks and mortar.
A beautifully furnished penthouse can genuinely set the heart racing in a way that a page of stocks and shares just can’t. Maybe that’s why so many investors find it hard to listen to their head rather than their heart when it comes to investing in property. Here are the top instincts to ignore and one to watch…
“I don’t know it”
“I’m not sure I want to invest in Berlin/Birmingham/Bali. I’ve never been there. It doesn’t appeal to me.” Although a very human instinct, this one should be dismissed. Just because you haven’t visited somewhere doesn’t mean it isn’t hugely undervalued at the moment and the only way the market can go is up. It’s nice to have an emotional connection with somewhere, but in investment terms it is irrelevant. Look at the figures. If they add up, that is what you should be listening to.
“I’m not sure I like it”
This is also very common and similar in its subjectivity. Sometimes a client will come and visit a flat but not feel it is somewhere they would want to live. This is usually easily explainable; multimillionaires in their 50s may not want to live in a two bedroom apartment in Camden. But in terms of what the market is doing and whether it’s a good investment, whether they want to live there is irrelevant. The point of the purchase is to rent it out, not live in it.
“My friend has invested in Edinburgh”
For some reason people always want to bring up what their friends and neighbours have invested in. It’s a way of validating their own investment choices. “My friend is investing in Edinburgh,” we’ll often hear when discussing an investment in Berlin. “Am I making the right decision?” Will my investment do as well as theirs or better?” It’s difficult for us to help with this. Your friend may have made a brilliant investment, but we’re unable to comment without knowing when they invested or what they invested in. It’s better to focus on your own investment. Comparing with friends’ activities can confuse the issue and stop you making the right choices.
“Doesn’t it look nice!”
If you are viewing an apartment or flat and it’s been nicely decorated it can be tempting to be swayed by that. Not only is it more attractive, but it’s obvious that less time and money will need to be spent on it before you rent it out. In this situation what it is important to recognise is that you’re almost certainly paying for this level of finish. You want to sell an apartment in good condition and well decorated, but you don’t want to buy like that, because you can’t add any value to the flat. This has already been done and is being paid for by you.
And the one instinct to listen to…
“This feels like a good investment”
Take your time. Don’t let anyone hurry you. Consider the alternative options and talk to people you trust. There may be fluctuations in the market, new rules and regulations may change things, but don’t let the herd rush you. You need to be confident in why you are buying as well as in what you are buying. And can you afford it? Only act once you are sure of all those things.