Buying an investment for the numbers

Emotions serve important functions in our lives, not only to influence our well-being but also how we relate to others. We enter life crying and screaming, and although we eventually learn to keep most of those outward emotional expressions in check, there are times when emotions can affect our rationale.

Buying a property is a wild roller-coaster of emotions (picture of a rolla coaster)

Buying real estate is definitely a time that effects our rationale, it’s an extremely draining process from beginning to the end. Buying for your home and purchasing an investment requires two completely different mindsets.

When purchasing your own castle there really should be an emotional connection with the property because after all this is going to become your sanctuary so over committing can be justified to get what you want.

Buying an investment property is a whole other story. One of the most common mistake that 1st time investors make is that they buy with their heart and not with the head. When it comes to purchasing an investment property you can leave your emotions at the welcome mat, the purchase should be strictly business.

This is a materialistic society we live in and like we do when we buy the latest gadgets or fancy cars, it’s also human nature to want to buy and own a beautiful investment property that you can show off to your friends.

The problem with beautiful investments is that more often than not they are in high demand. High demand means that most of the time you’re competing with emotional home purchasers and you find yourself paying more than you have to which puts you behind from the beginning.

Steve McKnight has always said “the uglier the property the better investment it makes”. This is because they are in much lower demand which means you are often able to negotiate a better price and can often purchase under value so you are ahead of the game.

Here is a good formula to remember;

When it comes to investing the more problems you solve, the more profit you will make.

The truth is that the appearance of the property should not even come into play. The astute property investor does not let emotions come into it, it has to be a numbers game. This doesn’t mean going out there and buying the cheapest most run down shack that money can buy because that probably isn’t a good investment either. This means that the purchase has to make sense. You have to take into account all the numbers such as how much it is really going to cost you and how much you will be getting back including expected annual growth and compare all the selected properties in your price range to compare the best investments. It is all about the numbers!

Here’s 4 quick tips to help you make sure your emotions don’t get the better of you!

          1. Map out your numbers before starting

100% the best way to treat this as a business transaction is to have your investing goals written down before you even entertain the idea of browsing

You need to have mapped out as a minimum the following figures; Price range, yield, capital growth, ROI (return on investment), total expenditure. If you aren’t sure about how to work out these figures than it might be worth doing some more research or getting professional help through the first few property purchases.

Once you have your figures it makes everything simple if it the property doesn’t stack up to your desired numbers than you move onto the next one.

          1. Be prepared to walk away

Sometimes the best investment purchases are the ones that you don’t buy. If you can’t get a property that works with the numbers or get terms that suit, then you need to be able to walk from the deal. If you become emotionally attached to a property, then that emotion could blindside you from a bad investment.

          1. Don’t rush your decisions

When we see something we like or we’ve been house hunting all weekend it’s easy to be worked up and wanting to make a quick decision. It’s best to take yourself away from that situation so you have time to re-assess the property and ensure that it still ticks all your boxes.

As a first time investor, negotiating a property is where the battle can be won or lost. Most of the time you are going up against agents who do this for a living and know the tricks to pray on newbie investors. They are well aware of the effect that emotions have on our ability to make rational decisions, so they’ll try to bully you into making quick emotional decisions. It’s best to be aware of what they are doing and take your time and think things through to make double sure you are buying on your terms

          1. Avoid buying at Auction

There’s not many situations where the emotions and energy run higher than at a property auction. It makes people do the craziest things. As an investor going to an investment isn’t advised because it can be too easy to get sucked into the vortex and over commit.

With all agents, auction seems to be the preferred method of sale, so if you are going to auction as a first time investor it may be worth getting a trusted friend (who knows what they are doing) or a professional to be your auction representative. You don’t want to be that investor that overpays at an auction and wakes up tomorrow with a buying hangover.

If you want help with knowing your numbers, then Divitis is launching an E-Course early next year educating investors on the path you need to take to help navigate your way through that first investment. Sign up here if you wish to join!

It can be a scary place, I remember I was with my first purchase, but if I can do it so can you. We’re here to help you push through the barriers and realise your dreams.