Here’s why smart investors do stupid things

They say common sense prevails, but even the smartest property investors can make decisions that are, shall we say, lacking in merit from time to time!

If you’re new to the property game, it’s likely that you want to avoid making these kinds of costly mistakes.

So, read on to find out why smart investors do stupid things — and how you can avoid going down this path yourself...

Smart investors make stupid mistakes because:

1. They’re overconfident

Sometimes, investing in property can inflate the ego — especially if your portfolio is growing or performing particularly well.

But, it’s important to avoid letting your success get to your head.

Sure, you might’ve made some great decisions that have led you to a large return and a comfortable lifestyle, or you may have benefited from a set of strong circumstances — such as booming market conditions.

But the smartest investors in the room understand that real estate is a game that changes constantly, so they don’t get too comfortable.

In fact, if you're the smartest investor in your team you're in trouble (but that's another story!)

2. They treat it like a hobby

Investing in property isn’t something that can be treated like a hobby or a weekend activity.

But often, the most clever people think they can balance a million things at once — their investments included — without giving their wealth creation strategy their full attention.

You can’t just "have a go’" at investing to test how it feels; it takes a lot of time, energy, and money to be successful.

To be a savvy investor, you have to take it seriously.

Treating it like a hobby or a side hustle will only get you hobby results.

3. They don’t manage their investments

Sometimes people make the mistake of thinking that investing in property simply means buying a property and placing tenants in it.

This could not be further from the truth!

In reality, becoming a landlord requires a long-term commitment from you.

In order to gain any sort of lasting, meaningful return, you have to manage the property well for as long as it’s in your possession.

This includes:

• finding a property manager to handle the logistics of advertising the property,
• placing the right tenants and collecting rent;
• making regular routine decisions with maintenance, repairs, and renovations;
• reviewing the rental market on a regular basis, and
• checking in to ensure your property still fits with your investing strategy as time passes.

In other words, the property is not a "set and forget’" investment — and anyone who treats it that way is playing a risky game.

4. They fail to do their due diligence

The term "due diligence’" is thrown around a lot in property circles, but it’s an imperative step in property investment.

Essentially, due diligence in relation to real estate is considered to be the steps that you take before buying an investment property.

Smart investors often fail to do this properly, because they have a tendency to think they already know what is required.

But if you want to have a decent, profitable investment, you must conduct your due diligence right from the word go.

From researching recent market trends, rental vacancy rates, demographic changes, and population growth rates, to reviewing the mortgage market and analysing supply and demand figures, due diligence is essential in every deal you do.

Going into an investment with the most possible information will help you gain confidence that you’re making the right decisions.

5. They don’t know when to quit

People are often surprised about the level of emotion that goes into property investing, and even the most intelligent and experienced investors can fall prey to it.

For instance, one common mistake many smart investors make is becoming too emotionally invested in their property and failing to see when it’s no longer viable.

Admitting that the investment didn’t work out as you hoped, is like admitting failure — and no one likes to feel like that.

Once you manage a property for a few years, it’s unsurprising to become a little attached to it.

But it’s imperative to try and maintain a little distance and continue treating your investment as just that — an investment.

You should always look at your portfolio from an analytical point of view.

Consider things like whether it is still providing a good return, whether is it still in demand with great tenants, and whether is it likely to remain a popular property with tenants in years to come.

Tips: Put the economics over the emotions, and you’ll know when it might be time to sell up.

Of course, even with all of the best checks and balances in place, real estate is by no means a foolproof investment class.

Working with trusted property professionals is one of your best defences against making property mistakes, which could cost you dearly in the long term.

About Brett Warren Brett Warren is National Director of Metropole Properties and uses his two decades of property investment experience to advise clients how to grow, protect and pass on their wealth through strategic property advice.