Whether you’re an experienced property investor or a complete novice, your emotions probably play a bigger role in your decisions than you think they do.
While knowing your numbers and understanding the market are crucial when investing in property, you also need to get to grips with your psychology and how it can affect your behaviour.
Failing to do so could allow your emotions to cloud your judgement, which may lead to costly mistakes.
Keep reading to learn about some of the most common emotional pitfalls to be mindful of when property investing.
Overpaying for or keeping an unprofitable property due to sentimental reasons
If you’ve lived in a property or spent considerable time, money, and effort renovating it, you might form an emotional attachment that prevents you from making decisions objectively.
Unlike other types of investment, such as stocks and shares, brick-and-mortar assets are tangible and familiar. While this can make them feel like a “safe” option, it could also make it harder to rein in your spending or move on when the numbers suggest it’s time to do so.
Behaviours to watch out for:
- Treating your property as special and personal, rather than as an investment
- Planning renovations based on your tastes rather than what’s marketable
- Overlooking fundamental issues and ignoring poor returns
- Refusing to sell even when the numbers suggest this might be wise.
Rushing to seal a deal for fear of missing out
Factors such as rising or falling prices and a surge in demand for rental properties could trigger rushed decisions due to a fear of missing out (“FOMO”).
You might also be swayed by other people’s success stories. For example, your friend is generating a lucrative income from a buy-to-let property they snapped up for a bargain in an up-and-coming area.
Behaviours to watch out for:
- Making quick decisions about buying or selling to seize an “unmissable” opportunity
- Failing to adequately research potential property purchases or sales
- Ignoring flaws and risks.
Letting overconfidence or confirmation bias rule decision-making
Historically, properties have grown in value over the long term, which may create a false sense of security. According to a Savills review of the UK housing market between 1952 and 2022, the average UK price has risen by 365% over the past 70 years, even after adjusting for inflation.
However, if you fall into the trap of assuming property prices will always increase because they have done so before, this might lead to biased decisions that could harm your financial wellbeing.
Linked to this overconfidence in the property market is “confirmation bias”, which is a mindset that leads investors to seek out information that reinforces their existing beliefs. For example, you might embrace headlines about rising property prices, while dismissing those warning of a crash.
Behaviours to watch out for:
- Overpaying
- Excessive borrowing
- Concentrating too much of your wealth in one asset class (property).
A financial planner can help you make investment decisions based on data rather than emotions
When your money is on the line, and you’ve invested considerable time and energy in a property, it might be hard to stop your emotions from affecting key decisions.
A financial planner can provide an objective perspective and help you avoid emotional decisions by focusing on the numbers.
They could also offer the support you need to overcome psychological barriers to investing beyond property. For example, if you worry that putting some of your wealth in the stock markets is too risky, a financial planner can:
- Build your knowledge and confidence
- Create an investment strategy that aligns with your appetite for risk
- Regularly review and adjust your investments in line with your goals.
Diversifying your investment portfolio by spreading your wealth across different types of assets is essential for managing risk and enhancing long-term growth potential.
Imagine you put all your money in property and the market crashes. Your overall wealth could be significantly reduced. In contrast, if your portfolio also contains stocks and shares in a variety of sectors and geographical regions, you might make gains in other areas that help to offset your losses in property.
Read more: Property v stocks: Which is the better investment for you?
Get in touch
If you’re interested in expanding your investment portfolio beyond property, we can help you build the knowledge and confidence you need to break out of your comfort zone.
Our financial planners have extensive experience advising on stock market investments, and they will create a strategy that suits your goals and appetite for risk.
To find out more, please get in touch.
Email helpme@aspirellp.co.uk or call 0117 9303510.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
Your property may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.
The Financial Conduct Authority does not regulate buy-to-let (pure) and commercial mortgages.
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