The two toughest emotional barriers and how to hurdle them
There are two emotional barriers that all beginner property investors worry about. They are both out of your control. But this doesn’t mean they should put you off investing in property. They are simply part of the natural order of things. If you learn to live with them, you can even benefit from them as you make house price predictions with the property cycle trend.
In this article, you’ll learn why you shouldn’t worry about property prices falling or interest rates rising.
Property prices will stagnate – and yes, they WILL sometimes go DOWN
Let’s be clear about this: property prices are going to fluctuate. They will go up, but they may also stagnate. They may even fall. That was the story in the immediate aftermath of the financial meltdown of 2008 and 2009. Prices dipped, but neither as bad nor for as long as many doomsayers predicted.
The impact of an event like that, which dominated the television news and the newspapers for months, is huge. There’s no doubt in my mind that it scared off a lot of people from residential investment property, and investment in general. A lot of people I meet are still held back by the idea that they could get their fingers burned by investing in property. They still read newspaper reports and watch news bulletins telling them that property prices are going up or down, that interest rates are going to do this or that. They allow themselves to get locked into the small picture, rather than looking at the big one.
An emotionally intelligent investor doesn’t allow this to happen. You must learn to ignore this ‘background noise’. Focus on the long-term property cycle and the historic performance of property. If you do, you’ll always ignore herd mentality during the short-term blips and bumps, and will always be prepared to profit from them.
Yes, interest rates will go up
In the same way that prices are going to fluctuate while you are building your investment portfolio, interest rates will, too.
Again, this is something that has been proven historically. Rates fluctuate. They always have done, and they always will. During the past few years, we’ve experienced record low rates. In the UK and US, for example, the central bank base rates have fallen to 0.25% and zero. The Reserve Bank of Australia took rates down to 2%. Borrowers have been enjoying rock-bottom mortgage payments. It’s been a fabulous opportunity for people to pay off their mortgages fast.
But, of course, it’s not going to stay that way. Indeed, many mortgage lenders have already broken away from these record low rates and are charging significantly more on their mortgages: several percentage points above the base rate.
It’s vital that you understand this reality from the very beginning: interest rates will change. They may go down – and more importantly, they will go up.
You need to be mentally and financially prepared for this. You need to have contingency plans to deal with rises in rates.
How do you eliminate the worry that interest rates will rise?
I like to be very conservative in my thinking around interest rates. In other words, I’m always prepared for the worst (a sharp rise in interest rates). To be fully prepared for a situation that would cause many property investors to meltdown, I apply my principle of mortgage cost averaging using a realistic worst-case scenario. If things turn out to be just about as bad as they can get, then I’m in a good frame of mind and, just as importantly, a great position financially to not only weather the storm but benefit from it.
And if things don’t get so bad? Then I’m pleasantly surprised and financially exceptionally fit.
Don’t let emotional barriers halt your success
Emotional barriers are the hardest obstacle to negotiate. The fear of rising interest rates and falling property prices are two of the most difficult. When you understand how the market works, they become a little easier to bear.
Whatever you are doing, there are always some things outside of your control. A recession isn’t your fault. Being made redundant isn’t your fault. Rising interest rates and falling property prices aren’t your fault. But rest assured, history proves that these external factors are temporary.
Property investment is a long-term game. Remember this, and those fears soon melt away.
To discuss your property investment strategy options, get in touch with Gladfish on +44 207 923 6100. We want you to be successful in property investment, and enjoy the cash flow and profits that we’ve helped hundreds achieve to date.
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