Near enough is good enough
by Maree Tassell on
Article appears under: About Property Investment
It seems that currently trying to find a “good deal” is as easy as sourcing toilet paper was back just before the April lockdown... Everyone is looking for it and worried it’s going to run out. Property markets are tight and FOMO (fear of missing out) is in the air. While there are all sorts of factors contributing to this, I want to focus on the mental game we play when we decide to shop in these conditions.
Two things we need to bear in mind with property are:
1. we are there to play the long game;
2. most investors will hit their goals from having a few properties (a portfolio) over time, as opposed to spending forever- and-a-day to land an amazing deal. I’m sure I’m not the only person who looks back on deals I didn’t buy years ago because I was quibbling over small things (usually something like a few thousand dollars), and kick myself for the action I didn’t take. In my inexperience I thought I was being smart, now years later I can see I had it totally wrong.
FORGET THE PERFECT DEAL
Every day I talk to people who are looking for the “perfect deal” and have major FOMO that they will miss out on the deal of the decade if they “settle” for a property that simply gets them started in the right direction. I also know that in another three years, some of these same people will still be looking for their “fairy dust” deal, likely having missed out on tens of thousands of dollars with the opportunities they didn’t take.
Which is why I can often be heard saying to clients that: “You don’t need perfect, you just need good enough.” You are looking for an investment property that over time helps you to buy your next one and work towards your financial goals, not a life partner.
I am not advocating for one minute to be laissez faire or casual with your due diligence, rather take this as a suggestion from someone who has been in the game for a while that you keep the focus on your “why” of investing rather than the “what”. Don’t have such a narrowly defined brief that you pass up on deals that over time would work very well for you.
There are exceptions to this rule of course. If you are targeting properties to undertake a type of project or strategy then it’s going to be important for you to hone in on properties that allow you to do just that. For example, homes you can add a bedroom to, or subdividable properties.
But this narrow approach isn’t necessary if you are a new investor who is looking for something broader such as “cashflow positive” or “add value opportunity”. These types of deals can still be found if you know what you’re looking for, how to find it and how to avoid mistakes.
KNOW WHEN TO COMPROMISE
However, what we often see in our business is new investors have a “wish list” of all the desired features in their dream property. Experienced investors will know what to compromise on to hit their goals, newer investors will often miss out on a great deal that meets their highest objective, because they major on a minor. I’ve seen people turn down a great deal that is yielding well because it didn’t have aluminium joinery, only to spend the next year saying they want another deal just like that one ... Gone!
Similarly, we see clients turn down a high cashflow property with upside because a 6.9% yield isn’t good enough, it needs to be 7%. This, despite the fact there can be good equity created. I’m not a fan of using gross yield as an indicator of a property’s potential in this low interest rate environment, preferring instead to look at actual cashflow. We are regularly now seeing sub-6% gross yields performing well... Who would’ve thought?
So, with this hindsight wisdom in mind I’m here to tell you that if you’re looking to buy an investment property right now, then please
feel confident that if you get the fundamentals right, and hold on long enough, it’s really hard to get it wrong.
This article was published in the October 2020 issue of the New Zealand Property Investor Magazine and is shared here with permission from the magazine.
The magazine is an excellent resource with digital and print options. We highly recommend it.
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