Warning – Avoid these FOMO errors investors make in today’s property market

Our property markets grew strongly last year with many locations enjoying double-digit capital growth, and they've started 2024 firmly, in part due to the lack of supply of A-grade homes or investment-grade properties for sale.

And this is starting to show itself as FOMO (fear of missing out) – when homebuyers and investors are scared that the market is running away from them.

This is in part because the media is changing its messaging, no longer suggesting a housing market downturn or a fixed rate mortgage cliff, but now reporting new record prices being achieved, strong auction clearance rates, and skyrocketing rents.

And this will only get worse when interest rates eventually start falling and there will be a flood of buyers and sellers back on the market.

I recently heard someone suggest our housing markets are on a Mexican wave.

You know, like what happens at the cricket or football.

One person starts, and another joins until the whole crowd has their hands in the air, and the circular intensity builds and builds.

They feel they must get into the market, particularly as there is a shortage of good properties for sale.

I've found that this cycle is very different to others I've experienced.

Normally at the beginning of a property cycle, there is a flight to quality – people remember the type of properties that held their values well during the downturn and avoid secondary properties.

But so far this year, I’m seeing some buyers so worried the market is going to pass them by that they are compromising their selection criteria just to get into this market.

In fact, many are buying property sight unseen in locations that they consider cheap such as regional Australia and particularly in Perth.

Unfortunately, we’ve seen how this ends up, and it’s not always a pretty sight.

So let’s look at some of the common FOMO mistakes I’m seeing home buyers and investors make because their emotions are driving their decisions.

1. Not really understanding the nature of the property cycle

In reality, our property markets are doing what they always do, moving in cycles.

Each downturn is followed by an upturn that eventually leads to a rapid phase of price growth which we call a property boom.

This time around, historically surging migration, low unemployment rates, and lack of good properties for sale at a time of increasing consumer confidence, as many Aussies recognise we've reached the peak of interest rates, and inflation is coming under control. Together, these have created a surge of demand, pushing up property prices.

It’s worth remembering that over the long term, owner-occupiers make up about 70% of all property transactions.

But it’s usually investors that create property booms by their FOMO, and then eventually, investors accentuate the property downturns by staying out of the market because of F.O.B.E (Fear of Buying Early).

Interestingly, this cycle was initially driven by owner-occupiers and first-home buyers, but now property investors are entering the market.

2. Heart over Head

When buying a home, a significant part of your purchasing decision will be based on emotion and a lesser amount on logic.

This is understandable, as your home is where you’ll raise a family. It’s your sanctuary.

When it comes to investing, however, letting your heart rule your buying decision is a common trap that should be avoided at all costs.

Allowing your emotions to cloud your judgment means you are more likely to over-capitalise on your purchase, rather than negotiating the best possible price and outcome for your investment goals.

Property investors should always buy the property based on analytical research, looking at things like...

• What are the local demographics like?
• Will this lead to the capital gains and returns you require?
• It is in the best location to attract quality tenants? Ones who can afford to pay you increasing rent over the years rather than tenants who are only a week away from being broke.
• Will it appeal to the owner-occupier market that sustains property prices in the long term?
• What is the land to asset ratio?
• Is there the ability to manufacture capital growth?

By answering questions like this, rather than buying a property because you loved the curtains or thought it would make a good holiday retreat, you’re thinking based on financial gain rather than personal feelings.

And at the end of the day, investing is all about numbers and evidence, not emotions.

3. Diving in or Dithering

Two of the common FOMO mistakes I’m seeing property investors make is they are either acting too impulsively or being overly cautious and never acting at all.

The first is being in too much of a hurry, worrying the market is running away from them.

In the process, they make the FOMO error of avoiding undertaking thorough due diligence.

They’re in such a rush to beat the competition, that they waive cooling-off periods or don’t conduct essential building and pest inspections or strata searches.

Others miss the vital step of getting a solicitor to review the contract of sale.

Another FOMO mistake made is that in their haste, buyers overlook defects and potential repairs and end up biting off more than they can chew when they buy a property with structural issues that are likely to lead to problems they should have avoided and potential huge repair bills.

And not surprisingly, when investors buy emotionally they’re likely to overpay.

Now I’m not suggesting you look for a bargain; these are as scarce as hen’s teeth today, but paying considerably more than your bank values the property for means you’ll have to chip in a bigger deposit than you had planned as well as paying more stamp duty and taking out a larger mortgage than you needed to.

At the other extreme are those investors who procrastinate and wait until they know it all or till the timing is just right or till they find a bargain.

As I said, you’re unlikely to find a bargain today, and you shouldn’t try to time the market.

Of course, I understand why investors would think it’s the right thing to do.

I know many financial planners recommend ‘when-to’ investments, which means you have to know when to buy and when to sell.

Timing is crucial with these investments: if you buy low and sell high, you do well.

If you get your timing wrong though, your money can be wiped out.

Shares, commodities, and futures tend to be ‘when-to’ investments.

I would rather put my money into a ‘how-to’ investment such as real estate, which increases steadily in value and doesn’t have the wild variations in price (if, and only if, you buy the right type of property) yet is still powerful enough to generate wealth producing rates of return through the benefits of leverage.

While timing is still important in ‘how-to’ investments, it’s nowhere near as important as how you buy them and how you add value.

Most ‘when-to' investment vehicles (like the stock market) produce only a handful of large winners, but there tend to be millions of losers. On the other hand, real estate produces millions of wealthy people and only a handful of losers if you follow a time-tested strategy.

4. Not adhering to their property strategy

Property investment is a long-term game – it’s a process, not an event, and, like other things in life, when property investors fail to plan, they plan to fail.

Trying to build a lucrative property portfolio, one that will one day give you financial freedom and choices in life without a plan of attack is like setting out on a road trip without a map…you’ll inevitably take a wrong turn and end up lost!

In reality, planning is bringing the future into the present so you can do something about it now!

Successful wealth creation through real estate requires you to set goals, determine where you want to end up, and then devise a cohesive plan to get there.

You need to focus on both the short and long term-and ensure your investment decisions gel with your overall strategy.

• Also read:This week’s Australian Property Market Update – Latest Data, State by State November 26th 2024
• Also read:Melbourne property market forecast for 2025
• Also read:Sydney property market forecast for 2025
• Also read:Brisbane’s property market forecast for 2025
• Also read:Everything you need to know about the state of Australia’s property markets in 20 charts – November 2024

Work out what you want to achieve with regard to income – are you chasing short-term yields or long-term capital growth – and how you can best manage your cash flow as a smart investor.

What type of property do you need to buy in order to meet your income goals?

With a carefully thought-through outline of your investment journey, you’re more likely to end up exactly where you want to be.

So plan your actions and then activate your plan.

If you’re a beginner looking for a time-tested property investment strategy or an established investor who’s stuck or maybe you just want an objective second opinion about your situation, why not let the independent property strategists at Metropole build you a personalised Strategic Property Plan?

When you have a Strategic Property Plan you’re more likely to achieve the financial freedom you desire because we’ll help you:

• Define your financial goals;
• See whether your goals are realistic, especially for your timeline;
• Measure your progress towards your goals – whether your property portfolio is working for you, or if you’re working for it;
• Find ways to maximise your wealth creation through property;
• Identify risks you hadn’t thought of.

And the real benefit is you’ll be able to grow your wealth through your property portfolio faster and more safely than the average investor.

Click here now and learn more about how you could benefit from having a Strategic Property Plan built for you.

5. Changing their investment strategy

When the property market is booming and FOMO kicks in, some investors take shortcuts, cut corners or change their strategy just to get into the market.

Sometimes they decide to buy a particular type of property because they see others buying or because someone they know made a recommendation at last Sunday’s Bar-B-Q.

If your aim is to gain financial freedom through property investment this is a critical time to stick to a proven strategy.

Strategic investors do what’s always worked and don’t look for what’s working now.

They buy investment-grade properties that will be in continuous demand by both owner-occupiers and tenants over the long term, rather than looking for a short-term fix in the next hot spot.

6. Speculation over Patience

I’ve found many property investors are hoping to become overnight millionaires.

They think the property will be a quick fix to their financial problems, but the truth is seeking short-term gains in real estate is more about speculation than strategic investing.

In fact it takes most property investors 20 to 30 years to build a safe, sufficiently large asset base to give them substantial financial freedom.

My strategy is to use the capital growth you make from one property to leverage into another property, and then with the combined gains you make from those two properties, you buy more to add to your portfolio.

Better still, you can use other people’s money (borrowed from the banks) to do so.

No other commodity gives you the ability to do this so successfully.

In fact, REIA statistics show that Australian housing prices have soared by more than 500% over the past 25 years.

By approaching property investment with patience and persistence, you will gain far more success (and wealth) than if you seek out the “next big thing”.

Securing proven, high-performing property that grows consistently over the long term is the only way to ensure you make it to the top of the property ladder.

7. Not having a finance strategy

Property investment is a game of finance with some houses thrown in the middle.

Strategic property investors have a finance plan to allow them, not just to buy one property but the next and the next.

By the way… banks won’t help you plan this.

That’s why you need an investment-savvy finance broker as part of your team.

In today’s market, some of the FOMO finance errors I see buyers make include:

• Signing a contract without having a finance preapproval in place.
• Not understanding what type of property the banks don’t like. Some banks won’t lend for certain properties, locations, zoning or title types (like stratum or company title) unless the purchaser has at least a 20 per cent deposit. The banks may also be reluctant to lend you money if your property is in a flood or fire risk zone, in certain postcodes, in high-density apartment towers or if you buy an apartment that is smaller than 50sqm.
• Another finance faux pas is when FOMO causes buyers to take financial risks by exceeding their budgets or spending their last cent to get into this market and then have nothing left over for the inevitable expenses that occur when buying a property.

8. Compromising on Location

Despite the fact that their property’s location will do 80% of the heavy lifting when it comes to capital growth, some investors are so desperate to buy in a particular suburb that they buy in the wrong location in that suburb.

While a rising tide lifts all ships, Warren Buffet smartly said that once the tide goes out you’ll see who is swimming naked.

Sure, most properties may be selling well now in this rising market, but when the market eventually slows down, and it always does, properties in secondary locations (even investment-grade suburbs) will languish, suffer with lower capital growth, and have difficulty finding good tenants.

However, some buyers are compromising and buying on or too close to main roads, or too near train lines or in flood-prone areas, rather than buying in an adjoining suburb they can afford, and which may well benefit from an uplift in values due to the “ripple effect” on values.

Others are buying in regional locations because they’re cheaper, hoping that the “escape from the city trend” will continue.

However, the big drivers of capital growth will continue to be economic growth, jobs growth, and population growth which will be more prevalent in our big capital cities, so don’t fight the big trends.

9: Taking advice from the wrong people

In Australia, we seem to have 27 million property experts because, currently, everyone seems to have an opinion about what’s going on in our property markets.

But be careful who you listen to or which media reports you read.

You should not only avoid advice from well-meaning relatives and friends who’ve really never made it as successful property investors but be careful of the new breed of so-called property “experts” offering advice on how to get rich quickly through property.

Just to be clear… I firmly believe investors should take advice, but they should learn from somebody who has a proven track record of investing through multiple property cycles and who has achieved the investment success you’re looking for.

These advisors should help you avoid the many potential landmines in your property investment journey.

But if you’re not paying for their advice, chances are you are the product as the “advisor” must be getting paid by somebody else who is interested they are looking after.

10. Buying the wrong property

Today’s market, where some buyers feel they have to make snap decisions, is causing many to compromise on the property they buy, and, of course, this is one of the biggest FOMO blunders of all!

Firstly, you’ll need to choose the right investment location, one that will outperform the averages because it is going through gentrification or because it is where affluent owner-occupiers want to buy.

Then you’ll need to buy an investment-grade property – one that will remain in continuous strong demand by owner-occupiers and tenants in the future.

While any property can become an investment – just kick out the owner and put a tenant in – less than 4% of properties currently on the market are what I call “investment-grade” and will deliver wealth-creating rates of return over the long term.

But currently, FOMO is causing investors to buy the wrong property or a good property but in the wrong location.

One error that I’m seeing currently is investors buying off the plan, despite knowing new and off-the-plan apartments have a long history as poor investments.

Some buyers are letting their emotions get in the way and hoping the market continues to rise to cover the premium they paid for buying this type of secondary property.

The bottom Line:

This is a great time to remember the quote from Warren Buffett – “Wealth is the transfer of money from the impatient to the patient.”