Rising above the psychological barriers to investing

By Nila Sweeney

If you are thinking of investing but too afraid to make the first move, read on as Margaret Lomas reveals practical strategies to reduce if not completely eradicate your fears of investing now.

The time seems right.  The indicators are all there, telling you that now may be the right time to start, or to continue, your portfolio.  You are feeling financially secure, but want to improve your potential future income.  You know that the capacity for the government to provide for your retirement needs is limited, and that you must do something for yourself.

But you can't do it.  Something within is throwing up all manner of challenges for you, and you simply cannot bring yourself to hold your breath and take that leap.  And, as you procrastinate, the years keep rolling on and you know, without doubt, that you will look back and regret that you didn't take the chance when you could have.

Overcoming the biggest obstacles to investing

Many years ago we had a couple who had been to consult with us about their future.  They had paid off their own modest home, and both had jobs, albeit quite low paying ones.  Many of their friends had begun to work on a wealth accumulation plan to allow for a better retirement, and so they felt compelled to follow the crowd.

We structured a personal strategy for them, and all that was left was for them to begin to make the property selection with which they were the most comfortable.  On no less than 4 occasions, a property was found, negotiated upon and contracts drawn up, when they would suddenly pull out of the deal after a weekend of angst, headaches and endless questioning about 'what if'.

After a long session with the couple, I ascertained two things were at work.  Firstly, they were attempting to embrace a strategy, which was foreign to them because other people said they should, not because they were truly committed themselves. Secondly, they were in a comfort zone, being debt free, and had a fear of debt, which was blocking their vision for the future.

We addressed these issues by first of all establishing what the future might look like if they did nothing, and then working out if this picture of the future fulfilled all of their goals.  We discovered that, in fact, their present course of action would not allow for them to enjoy one of the basic goals they had always held dear - to buy a caravan and tour the country.  In formulating and then painting the picture for this goal, the couple were able to see that taking no action now would result in this goal becoming an impossibility, and that the action to be taken was not a big risk one.  They didn't need to build a portfolio of dozens of properties, which was definitely outside of their comfort zone due to the debt level required for that, and a few well chosen inexpensive properties would probably be enough.  We also established that, since going into debt again was also a problem, they should start small with a very cheap property, and build from there.

This couple now hold 9 properties in their portfolio and are looking for more.  Having started the process, and then subsequently discovering that none of their fears materialised, they gained confidence and now even enjoy the process.  And their goal for the caravan is well and truly back on the agenda.

In all of the years I have been assisting people to buy property, I have discovered that all of the knowledge in the world can still do very little for most people - it is the psychological factors which become the barriers that prevent many people from investing success.  Knowing what these factors are, and then identifying your own personal psychological barriers so that you can remove them, is the most important first step to take as an investor.

Fear factor

Fear is the first factor that will usually holds people back from moving ahead with their property portfolio.  This fear comes in a range of disguises.  Here are the main ones, along with some strategies for overcoming them:

• Fear of losing your own home

If you have already achieved a comfortable debt level, and have considerable equity in your own home, you may worry that making the wrong choice will lead to financial ruin.  The likelihood of this is very small and this fear must be put into perspective.

Imagine you own a home worth $300,000 and you owe $150,000.  You buy a property for $200,000 using a debt of $210,000 secured across your own home and the new property.  Your debt is now $360,000, and your equity has been reduced, for now, by $10,000 down to $140,000. 

For any number of reasons, it all goes horribly wrong and you are forced to sell the new property.   To do this quickly you must reduce the price, and you only get $180,000 for it.  Now you have a debt of $180,000 which is $30,000 more than you had when you started.

This is far less than ideal, but it also is unlikely that an extra $30,000 of debt (which would cost you a net of $34 a week) will force you to lose the home you already had.

To deal with this fear, work out the worst case scenario and ask yourself if you can afford that outcome.  If not, then you should not buy, but it is more likely that the worst thing to come out of a failed property investment is an increased personal debt that you probably can manage.  And remember, the actual likelihood of this result is very small anyway.

• Fear that you will not be able to afford to repay the debt if the property is vacant

When people first begin to consider this possibility, they imagine that there will possibly be months in which no income is being achieved and they will be required to meet the mortgage repayments from their own pocket.  If this is your fear, you must consider:

1. Buying positive cash flow property will give you extra income which can assist to pay for periods of vacancy.  A property with a $20 a week positive cash flow gives you a total of $1040 a year, which, for a property renting at $200 a week, provides 5 weeks of allowable vacancy before you must even reach into your pocket.

2. Tax deductions reduce your shortfall.  So, technically, for every $200 a week that you do not receive, a tax payer in the 30% bracket will receive an additional $60 tax break, reducing your commitment to $140, or allowing more weeks of vacancy.

3. In reality, if a property is vacant for a week or two, you can take action then by reducing the rent.  Even if you reduced a $200 a week rent to $180, you would only be losing $20 a week ($14 after tax breaks) and you will have boosted your chances of attracting a tenant as you have become competitive.

4. For vacancy caused by an inability to rent out a damaged property, you should be sure to have landlord's insurance.  At an after tax cost of around $7 a week, this is vital.

From this you can see that there are many ways to deal with vacancy issues, and it is highly unlikely that your property will need to remain vacant for long enough to cause financial stress to you.

• Fear of making the wrong choice

Buying a property involves making a large purchase.  Even if you borrow all of the money and use little or none of your own, your commitment is a big one.  Why is it, then, that people so carelessly choose property, using all manner of emotional reasons to buy?   Investors mistakenly believe they can use a 'gut feeling' about property, or base their choices around what they would personally like to live in.  Worse still, they follow the crowds, take advice from their unqualified friends, buy a property in their dream location near the beach and largely put faith in people who have a vested interest in their purchase - such as the person selling the property to them!  It's no wonder so many bad choices are made.

You can never remove all of the risk when you invest in property, but you can manage it and increase the chances that what you buy will work out well.  However, you can only do this by becoming educated first.  The reason I developed the 20 Must Ask Questions® when buying a property was to provide a benchmark which becomes the minimum criteria that a property and area must display before it becomes likely to perform well.  If your fear is that you will choose badly, then leave your emotions at home, learn how to invest well and arm yourself with solid research. Then, commit to only buying property which can satisfy them.


Every year I attend the property expos held all over the country.  And every year it seems the same people approach me to tell me that they heard me last year, felt inspired but then after they got home they simply could not bring themselves to get started.  They admit to thinking about it alot, but the action never seems to occur.

If you know that you have the capacity to buy property, and you also have a desire somewhere deep inside to do so, you must recognise if you are a procrastinator.  The worst thing for procrastinators is that they usually experience very deep feelings of remorse when they miss the boat and realise at a later date that they had the capacity to get ahead, but missed it.

If you are a procrastinator, then you must develop the habit of writing down your goals, developing the steps required to achieve them and then putting these steps as a must do on your calendar.  Devise penalties for yourself if you don't meet the date set and rewards if you do.  Start to take control of your life by scheduling the tasks which must be completed in this way, and soon you will own an investment property.

Lacking motivation and time

So, you go to a seminar, read a book and you are buzzing with excitement about the property portfolio you are about to build.

You go home, and the next day when you wake up the kids are sick, the boss wants you to do overtime and your mother in law has come for a two- week visit.  Suddenly it all becomes too hard and as each day passes buying property slips way down on your list of priorities.  Regardless of how much education or desire you have, life easily gets in the way, and before you know it, another year has passed and you are another year closer to retirement.

People are amazed at the number of properties I own, and figure it is because I have special knowledge, or skills.  The truth of the matter is that I eat, breathe and sleep property.  I am lucky in that every day, from the moment I arrive at my desk, I am working with property.  I am answering questions, motivating others and even if I wanted to, I cannot get away from it.  It's no wonder that all I ever want to do is buy more!

Two years ago I examined our clients to work out why some were more successful than others.  I wanted to know why, since they all had access to the same information from us, and since we had established before they became a client that they were financially able to succeed, why some did amazingly well and others either plodded or did not buy any property at all!

It came down to one simple thing -the successful ones have consistently placed themselves in what I call the 'property headspace' - a place where the motivation continues on an almost daily basis and results in a constant focus on the end goal!  It could be attending focus group sessions, using all the property tracking tools we provided or doing the things we suggested. When you live in that space, you can't help but buy property!

Allowing life to get in the way is no excuse.  I have 5 children, a national business, a TV show and write books, but still I make time to work on my portfolio.  You must allow psychological space to work on your portfolio, every day.  You must find qualified people to help you, and associate with those who have the same goals as you so that the support you receive doesn't stop.  You will be amazed at how your capacity to achieve more increases when you do these things.

Get your psychological house in order from the outset, and the problems which arise along the way will be easily dealt with and overcome.  Recognise what your own particular issues might be, and develop strategies for dealing with them before you start.  And never stop working toward your financial future - the road is long and tough, but remaining positive and committed, and dealing with your fears, is the only way you will ever start the journey!

This article was written by Margaret Lomas, director of Destiny Financial Solutions, is a qualified Financial Adviser and author of a number of books about property investing. She is also the host of 'Monday Night Money Makers', a Property Show airing on SkyNews Business at 8.30pm each Monday. Visit: www.destiny.net.au .
First published on Your Investment Property magazine (June). To subscribe go to www.yourinvestmentpropertymag.com.au