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The psychology of property investment

Monday, December 5, 2011

As as an old year gives way to a new one, forward planning is on the agenda over the holiday break. As property investment owners review their investment portfolio, they sometimes get dissatisfied with their current returns.

At times like this they are tempted to be impatient, thinking the market is going up slowly at best, or the rent isn’t as high as it should be or the current tenants are not as good as the last ones. They decide that selling their investment property is the answer. Is it?

It’s understandable that once the excitement of owning an investment property has settled, some investors get sick of making sacrifices to pay the extra mortgage and start to investigate returns achieved from different investment options.

But investors who get itchy feet and decide to move on have lost focus of the discipline that led them to invest in property in the first place.

You need discipine to stick to your investment strategy (assuming you have one - if you don't, read our next article: "Your investment strategy"). Not having an investment strategy leaves you open to the biggest mistakes in investing: selling in a declining market and buying overpriced assets. You need discipline to stay invested for those periods when the market seems to be going nowhere. It is the nature of any investment: prices will not go up all the time. It is inevitable that there will be neutral or backwards periods in any market, not only Real Estate.

In fact, selling too soon often delivers the opposite of what investors are hoping for. Firstly, every real estate sale incurs costs which eat into the profits, so selling too soon often reduces the overall financial gain, especially if they sell before they have held the property long enough to see the market deliver its cyclical capital appreciation. Don't mistake return of capital with return on capital.

George Soros, a Hungarian-American business magnate and billionaire investor, once said: “it doesn’t matter how often you are right or wrong – it only matters how much you make when you are right, versus how much you lose when you are wrong.”

So, during the end of year reviews, ask yourself the right questions: is it time to sell or is it time to stop and review your investment strategy?

To discuss your particular investment property management strategy, please call Peter today on 8404 3111.

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