In my book, Strategic Property Investing “How to Systemize Real Estate Success and Unlock Time Freedom for Busy Professionals”, I delve into the dynamics of money velocity and the advantages of renting over buying during the wealth-building phase of your property investing journey. However if you have to buy then hopefully you have bought strategically and your available resources have allowed you to maximise the opportunity.
I’d like to share a particularly baffling conversation I had with a friend, highlighting the dire consequences of unsophisticated and emotion-driven thinking.
My friend is searching for a one-acre plot to construct his dream house. However, he’s constrained by his budget and needs to make some significant compromises to find suitable land in his preferred location.
Now this is not property investing as much as this is buying a home, but stick with me.
I suggested an alternative: a recently built home on one acre. It doesn’t have all his desired features, but these features could be added over time, saving him the stress, aggravation, and costs of building from scratch.
Not to mention saving him the emotional stress of paying too much for a vacant plot of land in this premium area.
This home, with nearly, but not everything he desires – views, location, size – is available for $1.7 million. Building anew would likely cost him around $1.9 million, not to mention the delays and headaches involved.
He has two young children both under the age of 4 and is determined to establish roots and create a home for his family to create beautiful memories over the next decade or so.
Both options are in low-density residential zones with unlikely rezoning prospects in the near future. Even if the local government decided to rezone, it would not be significantly different to what it is today inside a 10 year time horizon.
Ok, all fine.
And here is the plot twist:
I know of a vendor, whose circumstances have changed and has decided to cash out of all his investments, selling a 2.5-acre property with a spacious 1980s home for $1.8 million. Located less than 1.5 km from his desired street, with stunning views and adjacent to a winery, this property is zoned for urban growth.
The vendor has attained verbal approval, subject to site works, to subdivide into 10 lots. He is simply waiting for the huge 380 plus home development on his neighbouring lot to commence, for which plans and permits have just been approved, bringing in sewer and other services required to subdivide his 10 lots.
This is likely to happen between 5 and 10 years.
I proposed this property to my friend as an incredible opportunity. For the same cost, (maybe $150,000 at the most) as purchasing a single acre block in a less valuable zone and building new, he could spend on a renovation, enjoy the premium living area, have the views, backyard backing onto a winery, build the memories, attain another acre, and in about 10 years eventually sell the subdivided lots for significant profit, and fund his retirement. Simply by just living there and allowing the huge developer neighbour to do all the work!
What do you think he said? That’s right – he said no!
To say I was perplexed is putting it lightly.
He remains fixated on building his dream home on a one-acre plot.
My partner asked him what his retirement plan is. He said his retirement plan is property investing, yet he rejects an opportunity that aligns perfectly with his long-term financial goals.
My partner then asked a poignant question. If he had his financial freedom today, would he continue working the same way in the same job as he does today?
He admits he wouldn’t continue his current job if financially free, yet he overlooks a chance to achieve that freedom sooner. I asked him “would you
This scenario is a stark reminder of how emotions can cloud judgement and lead to catastrophic decisions. Despite being highly educated and rational, my friend is poised to miss an exceptional opportunity due to a misguided need for immediate gratification and familiarity.
Let this be a lesson to everyone in property investing, in stepping outside your comfort zone and challenging conventional thinking for greater rewards.
No one is immune to making disastrous decisions that have far reaching and negative consequences because of our fundamental need to act on feelings and emotions, even when the opportunity of a lifetime, with little compromise, are being presented to you.
Imagine leaving a $100,000 per year of profit (approx.) for 10 years at least (tax free btw)!! I am flabbergasted.
I sincerely wish them well, but this situation exemplifies the often-painful gap between aspiration and action, a gap where life-changing opportunities are lost to comfort and convention.
