updated 15th June, 2021
By Steve Waters
It’s nice to believe we’re unique but, in truth, human patterns of behaviour are predictable.
This isn’t always a bad thing – particularly for professional advisors like me who’ve operated in a specialist field for some years. It helps us identify what’s driving people to act in certain ways, so we can help guide them through their property investment journey.
One of the most important steps in the process is to identify which of the five categories of investor types they fall into. This enables us to establish specific strategies that help them tackle their perceived limitations and move toward becoming sophisticated investors.
So, which of these five types do you identify with?
- The observer
Few people begin a challenging journey by simply ploughing forward without first acquiring at least a little background knowledge.
Successful investors must primarily seek out knowledge and understand the subject, and that begins with observing.
The observer isn’t yet committing funds, or ‘hurt money’ as I call it, to their venture. They spend endless hours poring over analysis and opinion, discussing statistics and rationalising their choices. They will set up an extraordinary number of ‘watch lists’ on their favourite property portal, and examine the results forevermore.
While I applaud their hunger for knowledge, the observer has one key failing. They get caught in the endless loop of analysis and are eventually paralysed into inaction.
Watch the observer. They’re the ones who always seem keen to acquire an investment, but soon after spotting a great listing, begin highlighting its faults. This builds to a justification for them not to get serious about negotiating a purchase.
Observation to a point is great, but if you are becoming entrenched in indecisiveness, it might be time to seek assistance, otherwise you’ll end up in a world of regret fuelled by lost opportunities.
- The speculator
The speculator is untethered in their enthusiasm for acquisition. Being a speculator sounds like a heap of fun, because they operate with almost no perception of risk, making big decisions on the fly.
Who isn’t thrilled by the adrenaline rush of quick wins? The speculator is on the constant hunt for opportunities to purchase and profit. Driven by the desire for fast gains, they’ll forego sensible due diligence and, instead, try to outwit the market.
The speculator’s view is entirely short-term – they love the action – but speculation without information is a risky game in property. And the downsides can be extremely costly.
- The collector
The collector is looking to buy and hold, but often lacks the long-term strategy needed to make truly wise investment decisions.
They want to acquire more and more real estate and will often stick with an investment long after they should have offloaded.
They can still be impetuous, but with a foundation in fundamentals and without needing a ‘quick win’ to justify their decision. For example, collectors are typical of those buyers who are walking past an auction in their neighbourhood, decide to stop in and see what’s happening and – almost before they know it – they’ve registered, bid and bought the property because it had the right fundamentals for potential growth.
The collector has some valuable experience in property investment, and will pay attention to due diligence. But once they acquire a property, they probably can’t fully articulate its benefit to their overall portfolio, or consider offloading it at the appropriate time.
- The investor
The investor is the most sophisticated of the four types. This is what you want to be, or at least, where you’ll want to end up.
The investor loves opportunity and is prepared to take advantage. The investor has their finance at the ready and research on hand. They’re aware of what’s needed for their portfolio to thrive in the long run, and are seeking listings that fit the criteria.
The investor is also strategic in their analysis. Due diligence is done thoroughly and efficiently, so those prospects that fall outside their requirements are quickly ignored. This means they can spot hot prospects quickly and devote time to pursuing only those holdings that will suit their needs.
5. The resentful investor
The resentful investor almost always comes out when things don’t go their way. They let go of all common-sense. They focus on nothing but growth. Because everything is humming along so I can afford all of this but then the rate of growth slows, rates increases and the lack of CF becomes very apparent. Resentment then sets in. At this time of the cycle they don’t exist but come the next 3-5 years they will crop up as commonplace.
All profiles lead to the resentful investor if you aren’t well considered and stay the course.
Know thy self
Often you graduate from one profile to the next – in fact, it happened to me as a property investor. You don’t just come into the world as a fully formed owner after all.
I started as the observer and was then convinced to act by my wife.
Then, because I had a lot of profitable wins very quickly, I was all for speculation. I even speculated on some holiday units which have proved to be my worst ever acquisitions. They are worth the same now as what I paid for them 18 years ago.
I then became a collector, because I’d learned from my speculation errors and I loved ownership. I simply continued to purchase ‘by the basics’ but with little idea of where they’d lead.
This steered me toward investor status because I came to realise I needed more strategy in choosing properties.
Some may argue you can skip straight to investor type by simply surrounding yourself with the right people – but this just isn’t possible in my opinion.
To be successful you need to have some ‘hurt money’ in the game and have made some mistakes along the way. They don’t have to be grand errors – perhaps you simply paid rates at the wrong time or got a little greedy on rent. Just tiny moves that had implications and gave you an education in the process.
This allows you to graduate through the process – but growth begins with self-realisation.
Like all paths to redemption, the first step is recognising you are a particular type and therefore, subject to certain shortcomings. This sort of approach helps you evolve as an investor by making practical changes in your approach.
The evolution means you can look forward to becoming a well-rounded, intelligent investor with a successful portfolio geared toward achieving long-term goals.