How Psychology Affects Property Investing And What Are The Effective Strategies To Follow

Warren Buffet said that you don’t need to be a superhuman with stellar IQ and analytical abilities who owns inside information to be successful in investing. You simply have not to let your psychology corrode your cold-headed decisions, he added. Although this advice sounds too general, it is, in fact, a good way to work on a real estate market – considering its long-time investment nature and always present news-triggered foam of buzz, which makes prices horse-race up and down.

Below, we’re considering the principles of the psychology of real estate and methods of making your property decisions more structured.

Consider your interests

The fundamental thing in real estate pricing psychology is that many people are simply afraid of investing, even despite enough budget they have and positive market news. If you’ve been looking for many objects in your price range and they are suitable for investments but, at the end of the day, you don’t pick any of them, being overwhelmed over time with the number of seen objects, this is you. Fear stops you, preventing you from moving ahead.

Maybe, you are just not the person right for real estate investments and you should consider other options – low-risk low-profit, like bank saving accounts or REITs (but in the US, saving accounts tend to bring negative income these years).

If you simply let your fear control your life, then it might be the time to overcome it and start thinking about your financial future cold-headed. It is in your own interests, for god’s sake! So the first and major piece of advice is actually to buy one of the good objects you have or will have considered.

You won’t overcome your fear before you realize that any investment is associated with risk. Even life itself! Your odds of dying from heart disease are 1 in 6. From cancer – 1 in 7. From choking on food – 1 in 2,535. Eventually, from lightning – 1 in 138,849! That’s in addition to hundreds of other dangers, which are all around us (and which we simply don’t have time to list in the article). But since you’re here, alive, and even have some spare money, it’s time to invest. Before you’re hit by a bicyclist and die (which is 1 in 3,825).

Don’t let overconfidence control you

You might have had a very positive previous experience of investing and this might form false overconfidence that the next ones will be at least not less successful. But that’s a very dangerous way of thinking! A true investor is always cold-headed and cold-blooded, always performing thorough due diligence on any object of investment.

Try to keep being humble and consider wisely, what are the real chances of profits and losses. And don’t lose the connection to the ground after being hit by luck – this might have been only one-time gods’ favor.

Analyze what losses you can really bear

Any investment is subject to ups and downs in the long run, which could be even greater than a rollercoaster. You should carefully and realistically estimate, what you’re ready to lose if something goes wrong. The same, if something goes terribly right and you’ve started drowning in money, estimate, which part of it you will reinvest.

When things go badly in real estate, you should completely stick with the understanding of this market’s nature – if prices fall now by 10-50…%, there will definitely be a re-bounce in several years, which will make prices even higher than before. Thus, you shouldn’t panic and sell your property, fixing a heartbreaking huge loss. Simply sit and wait for months or years until the situation stabilizes.

And that’s exactly for such cases, you should gain the financial cushion, which you’ll utilize to wait through the hard times. If you’re thinking of becoming overleveraged and stiff even on an extra penny, then real estate investing is not a good option for you. There are always some unforeseen circumstances that would require you to have a spare from 10% to 100% of the real estate cost if things go wrong. Don’t forget about various types of landlord insurance, though, which typically cover up to 99% of all potential risks (but also erode a buck from your pocket).

Think long-term

Real estate is always a long-term investment. Monthly cash flows might be stable or not – but investing in a property is, more often than not, investing in the future cost of an object. Here is where you should think generation-wise.

What do your children and grandchildren have? If you sell after 1-2-5 years of owning, are you sure you won’t regret it in 10, 25, 50… years from now? Taking the US real estate as an example of price growth, we see it tends to rise in cost by 334% every decade on average. Between 1953 and 2021, the average detached house median cost rose from $17,200 to $390,900, which is 22.73 times*!

* Data retrieved from the United States Census Bureau.

Minimize risks

Not buying any property is not the way of risk minimization. An actual way is making thorough calculations while being optimistic about expenses (maximizing them) and pessimistic about incomes (minimizing them). Adjust it to the information received from other market specialists you will talk to and always form a financial cushion to cover your back.