Beware of these FOMO mistakes property investors make
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The fear of missing out is one of our most powerful survival instincts, but in our modern societies often leads to seemingly irrational behaviour.
Remember those crazy supermarket scenes early last year as people stampeded and fought each other to buy a few rolls of toilet paper?
More recently it’s been happening in the property market, and it’s something we should stay well clear of.
FOMO is based on emotion, not on need
The fear of missing out creates massive demand which is not based on need, but on emotion.
Last year’s toilet paper shortage was not caused by a lack of supply, but by a panic-driven demand surge that quickly emptied supermarket shelves of toilet paper.
Such events are not unusual and can occur whenever enough people think that they might miss out on something essential, something that others already have, especially if the supply seems to be limited, and the need is immediate.
The property market is no exception, so it needs to be treated with caution.
Many buyers in hot markets quickly discover that they have paid over market value for their properties and because all growth cycles eventually end, that they have purchased at the peak.
Whether it’s toilet paper or property, the key is to buy at the start of a demand cycle when there’s still heaps of supply, not at the peak when there are shortages and panic buying sets in.
FOMO can lead to bubbles that bust
Even worse, FOMO can lead to property booms that are really bubbles, where buying demand pushes up prices, which encourages more buyers until the bubble bursts when demand collapses and prices take a nosedive.
Remember how property prices during the mining boom years in towns such as Moranbah, Port Hedland, Emerald, and Newman escalated as more and more buyers jumped in?
House prices reached values of up to a million dollars, but the demand was caused by investors, and when this exceeded the actual demand for accommodation, rents and prices started falling as everyone tried to sell at the same time.
That was the fear of missing out in action, and it had disastrous results for most of the investors who took part, with prices falling up to ninety per cent from their peaks.
Buy with your head and not your heart
We are not suggesting that the current property market boom is a bubble about to bust because most of the buyers are home buyers, not investors, but the danger of buying at the peak of the boom may still leave you with an eventual loss.
And there’s always the chance that more and more investors themselves will experience FOMO and start to buy properties during the current boom, which could not only increase the rate of price growth in some areas but turn them into bubbles rather than booms.
The key is to buy with your head and not your heart.
Then you can avoid getting sucked in by the hype that accompanies booming property markets.
When headlines tell you that properties are selling faster than hot cakes, or that you need to jump in quickly, before you miss out, our advice is to simply ignore them, because there will always be another opportunity.
There will always be another opportunity
Our property market is huge – there are over ten million properties and fifteen thousand suburbs to choose from, with many different types of properties available such as units, houses, duplexes, apartments, townhouses, maisonettes, homettes, and villas.
And you can buy them new, established or off the plan.
There are different types of rental markets, such as permanent renter areas, student precincts, holiday locations, construction areas, and suburbs where overseas migrants move on arrival.
There are different types of buyers, such as first home buyers, upgrading households, downsizing retirees, discretionary buyers, and of course, investors.
Even investors come in different types, such as active and passive investors, cash flow or growth seekers, long-term and short-term investors, renovators, and developers.
What all of this means is that there will always be an opportunity for you to meet your desired goals, as long as you buy the right type of property for the right price in the right area at the best time.
Remember that buying property involves the largest amounts of money that most of us will ever get to deal with, so it’s critical to put emotions aside.
Make your property investment decisions based on sound expert information and advice, not on the fear of missing out.