Rule 4: Love what you buy, but don’t be seduced: stay objective

Rule 4 of 8 in the series:  YDL Property Investment’s Eight Golden Rules of Property Investment

Rule 4 highlights the dangers of becoming emotionally involved with an investment property.

Rule 4 highlights the dangers of becoming emotionally involved with an investment property.

When buying any property there is always a tendency for the decision to be swayed by emotional factors. Never buy an investment property purely on the basis that you have fallen in love with it, if there are insufficient rational reasons for the decision. You need to keep in mind that you are investing to maximise your return on investment. Undertake a detailed cost benefit analysis to ensure the decision makes economic sense.

When you develop an attachment to property in general or one in particular, important things happen.  You notice more about it.  You enjoy spending more time studying it.  If you own it, you look after it better.  People respond to your enthusiasm about it.  All of this can flow through to a more lettable property, higher income and greater value.

The downside is that you pay too much attention to it.  You spend more money than is necessary, upgrading it without any improvement in your return.  Perhaps worst of all, you lose objectivity about its value in the market place.  You either overpay for it, or you overprice it on sale.  Both are costly mistakes.

You need to have affection for your property, and still be able to retain your objectivity.  The strengths of the right balance (or the weaknesses of an imbalance) are revealed most in negotiating to buy or sell the property.

The negotiations start when you meet the agent at the show house.  She will point out the good points of the property (agents are taught, quite rightly, that people don’t buy houses or flats, they buy a lovely patio, or a gracious bay window, or an oak tree).  Appreciate these points but make yourself immune to such seductions.  Point out the poky study, or the ancient wiring that needs to be replaced.  The agent represents the seller – a legal obligation in terms of the Estate Agency Affairs Act – and will always tend to be pushing the price up (although they will certainly be passing your price assessment back to the seller, along with your criticisms).  A good professional agent is a matchmaker and, although leaning on the side of the seller, will do her best to close the deal.

The agent will undoubtedly tell you that they have another person about to make an offer and that they are prepared to pay more than you are.  Even if this is true, you must not let that influence your own valuation of the property.  Nobody has physically lost money by not getting the property they wanted, whilst many have lost money by overpaying in the (sometime fictitious) competition to beat another buyer.  Test the agent out by suggesting she complete negotiations with the “other” buyer first.

Ask the agent why the house is for sale.  Find out what the seller does, his age, and occupation.  You should always be looking for ways the sale can be structured other than price – like form of payment or additional payment in kind – that can help you and the seller find a point at which you can meet and strike a deal.

Remember the property market is imperfect.  As you move through the market, getting to understand it and developing the ability to use your feasibility more skilfully, you will discover anomalies.  The agent may have over- or under-valued the house.  You might see that by adding or refurbishing in a certain way you will get a return that allows you to offer more than the other buyer and still achieve your desired return.

If you are likely to become emotionally attached to a property, and make poor investment decisions as a result, it may be advisable to partner up with someone who can help you to keep your thinking hat on, and your heart in check.  Another option is to allow seasoned professionals, such as YDL Property Investment, to work with you, to assist in ensuring that your investment is a good one.

After all, it is quite possible to like a property that is also a good investment.