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The ‘blunders’ from the fear of missing out – Michael Yardney

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We make no guarantees in this show but one thing I can assure you of is that when our property markets are hot, some buyers lose their cool.  Many are now scrambling to get into the market, particularly in Sydney and Melbourne, because they were sure prices would soften.  Now they have a very bad case of FOMO or the fear of missing out.  When you do that you start to make mistakes like the ones we discuss with Michael Yardney.

Transcripts:

Kevin:  One thing is for certain: when our property markets are hot some buyers lose their cool. Unfortunately some buyers are now scrambling to get into the market, particularly in Sydney and Melbourne, because in the past they presumed that prices would soften – which of course, they didn’t – and now they have a very bad case of the fear of missing out.

What are some of the blunders that happen that you should avoid if you’re looking at getting into the market? Joining us to discuss these, Michael Yardney from Metropole Property Strategists.

Michael, thanks again for your time.

Michael:  My pleasure, Kevin.

Kevin:  What are some of those blunders that we should avoid, mate?

Michael:  We are seeing a lot of them – you’re right, Kevin – because currently many investors and home buyers are getting exasperated. They missed out, and so what they’re doing is they buy emotionally. They’ve gone to one auction after another and missed out or they’re beaten to the punch at private sales, and so they end up over-paying for a property because their decision making is based on fear and not on solid research.

If it’s your home and if it’s somewhere where you’re going to live for a long time, it’s okay in my mind to over-capitalize a little bit or spend a bit more because you don’t have to treat that like a business; we know home buyers buy emotionally. But if you’re an investor, that’s not the way it works. Therefore, don’t buy emotionally, either over-paying or buying a secondary property just because you can’t find a good one, because it will always be a secondary property, Kevin.

Kevin:  I said in the intro, Michael, that many people were waiting, thinking that the market would soften. That is a bit of a mistake in itself – waiting for the market to correct – isn’t it?

Michael:  It depends where you are and in what parts of Australia. But if we’re talking about the hot markets that you talked about, interestingly last year, all the capital cities around Australia grew other than Darwin and Perth. We believe the markets are going to slow a little bit, but they’re not going to correct. They’re not going to go into reverse this year. Darwin and Perth may drop a little bit further but in the other areas, it’s highly unlikely that what we call investment-grade properties in our capital cities are going to undergo a major correction.

They’re going to continue to go up because there’s going to be an ongoing demand for them. So you’re right, Kevin; don’t wait for that correction. Don’t try to time it.

Kevin:  Michael, this fear of missing out, too, could also lead someone into making a very quick snap decision, which also could be a mistake, do you think?

Michael:  You’re right. It’s another way of dealing with it emotionally, isn’t it? Strategic investors and professional buyer’s agents buy without emotion. That includes at auctions, as well. So no, don’t make a snap decision. Base it on correct research and due diligence.

Kevin:  Michael, like you – maybe like you; I don’t know – but have you seen that guy in a lot of real estate offices who sits there with that big beard waiting for the market to correct, expecting a bargain, waiting, and hanging out for it?

Michael:  Kevin, I’m old enough to remember that picture in the front window, and I know you are, as well. Some of our listeners may not remember that picture. But yes, he grew old waiting, didn’t he?

Kevin:  He did indeed. And that’s a mistake, isn’t it?

Michael:  Another mistake is expecting a bargain in this market. It’s folly to wait for the market to soften – you’re right – but it’s equally irrational to expect a bargain if it’s a good property. I’d much rather outbid three other people at an auction and get an investment-grade property than actually say, “Hey, nobody turned up at the auction. Look at the bargain I got,” because you’ll wonder why. What do they know that I don’t know?

You make your money when you buy a property by buying the right property, Kevin, not by buying it cheaply.

Kevin:  And Michael, real estate agents, I’m one of them; we all love them. But really at the end of the day, if you’re a buyer you have to understand that the real estate agent is there to help the seller get the highest price. They’re not your friend.

Michael:  That’s their job, and they’re morally and I guess legally obliged to do that. They work for the seller, and so therefore another way to protect yourself in this hot market is to have somebody to level the playing field – and I’m suggesting a buyer’s agent.

Now, sure, I’m biased, but I just know that over the last couple of years 53% of the properties we bought in Melbourne and a slightly smaller percentage in Sydney and Brisbane have been bought off- market because of our access to properties that the average buyer wouldn’t be able to find even in this hot market.

So level the playing field and get somebody to help you, Kevin.

Kevin:  That’s a good look at the blunders, Michael. Level it for us now and give us your summation on this point.

Michael:  The key is not to get discouraged if you miss out; it is just part of doing business, and you have to treat property investment like a business. Instead, keep looking for the right property. Don’t’ compromise. Learn how to negotiate. But the best negotiating tactic, Kevin, is the one where you actually end up with the property – that you own it.

I see some people trying to be smart, making low-ball offers, making silly offers because they read somewhere in a book that that’s the way you do it – you make 100 offers and you get one property. You’re not going to get a good one that way. The best tactic, as I said, is the one that actually secures you the property.

So be ready to be in the position to do that by having your finance in place, knowing what ownership structure you’re going to buy it in, and by having a good team on your side. The key is to be quick but not in a hurry, Kevin.

Kevin:  Good talking to you. Michael Yardney from Metropole Property Strategists.

Thanks, Michael. Talk to you again soon.

Michael:  My pleasure, Kevin.

 

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