Five most dangerous types of property buyers

Buying an investment property can be fraught with danger. It deals with large sums of money, can be difficult to understand, and provides plenty of opportunities to make mistakes. But some mistakes are definitely more dangerous to your wealth than others. So what are the most dangerous types of buyer behaviour that a property investor can exhibit and that should be avoided? Let’s explore some of the worst by counting down our list of the 5 most dangerous types of property buyers.  

NUMBER 5 - The Over-eager Buyer

This type of buyer hates to miss out. They either fall in love with a property or, after getting frustrated at not finding what they are after, jump in whole-heartedly and get carried away in the moment. The result is they often over-pay, which is why they are loved by auctioneers. The Over-eager Buyer might pay above market value for a property, but as long as they’ve done their research and chosen the right property, the dangers should be limited. 

NUMBER 4 - The Mis-guided Buyer

This type of buyer buys for the wrong reason. Maybe they are looking to reduce their tax bill or they have been won over by the promise of a rent guarantee. They often attend seminars hosted by property spruikers and get advice from self-proclaimed ‘advisors’. The outcome is they often pay too much for a poor performing asset that fails to provide the capital growth they ultimately require. But at least they have enjoyed good rental yields and tax depreciation along the way.  

NUMBER 3 - The Bandwagon Buyer

This type of buyer likes the comfort of large groups. They move with the herd and as a consequence tend to buy property at the peak of the cycle when growth is fuelled by speculation. They buy property because everyone else is. This type of buyer will often get advice on when and where to buy from local real estate agents and taxi drivers. The poor timing and lack of research of this buyer means they often miss the market upswing and have to wait years for growth. Sadly, they often sell-up out of frustration before the growth eventually comes.  

NUMBER 2 - The Impulse Buyer

This type of buyer buys an investment property like it was a packet of gum at the service station. They happen to see a property on the market in their street or while on holiday and they decide on the spot to make a purchase. There’s no need for research when you have good instincts. Sadly, the lack of research and cash-flow analysis almost always leads to a poor performing investment that costs too much to hold and misses out on hundreds of thousands of dollars over the long term in lost equity. 

NUMBER 1 - The Would-Be Buyer

This is the worst type of buyer, the type that simply waits and waits. Procrastination is a favourite pastime for this type of buyer and they find it easy to come up with reasons not to invest despite the lingering realisation that they should. They are easily spooked by cautious relatives and are unwilling to take calculated risks despite seeing clear opportunities. For this type of buyer, a six month purchase window turns into two years and two years quickly turns into ten. They eventually decide to buy but by that time they have missed out on potentially millions of dollars and they are forced to continue working beyond their retirement age or live off a small pension.    

Conclusion

While every investor will make some mistakes throughout their investment career, clearly some mistakes are worse than others. If you can identify dangerous behaviour, you will be better prepared to notice them in yourself. When mistakes do happen, they should be viewed as an opportunity to learn. But many can often be avoided altogether by educating yourself and having a support network you can rely on. The most successful investors will learn from their own mistakes and from the mistakes of others. The best advice is to always keep a level ‘business head’, get advice from the right people and don’t skimp on the research.

Momentum Wealth and its affiliated entities are not Accountants or financial Planners. While all information is provided in good faith, you should seek your own independent advice in relation to all matters regarding investing, taxation and superannuation.