5 property buying mistakes buyers can’t stop making

British novelist Joe Abercrombie once said, “I have learned all kinds of things from my many mistakes. The one thing I never learn is to stop making them.”

To err is human. To repeat the same mistake is human weakness.

Out of all the property buying mistakes that home buyers can make, it is not difficult to notice five faults that buyers keep committing over and over again.

Mistake #1: They trust the “experts” know what they are talking about.

Flip the newspapers and you read comments of spokespersons from big developers, top agencies, prestigious banks and experienced investment firms – people we look up to for sound advice in home purchase and property investment.

You thought they know what they are talking about? Unfortunately, this is often not the case.

Yesterday’s headlines of financial news were all about Warren Buffett’s remarks at his Berkshire Hathaway annual shareholder meeting which held over the weekend (May 5).

Turn back the clock to 2011, did anyone remember what Buffett said to the shareholders back then?
He reminded investors not to pay attention to the media. Because the media has proved to be most inaccurate when predicting what is going to happen to the market.

How can the media be accurate about the market when their interviews and quotes are from spokespersons with vested interests?

How can the journalists be honest about the facts when their property articles are next to the new launch ads?

How can the industry stakeholders be genuine about giving advice when they put their interest first and the buyers’ interest last?

Most investment experts (or investment advisers, or private bankers, or something similar) are looking out for their own interests first. And they often do this to the disadvantage of their clients’ interests.

There are a few ways to defend yourself against bad advisers. One way is to avoid them altogether, and chart your own financial future.

Another is to use them for ideas … but not to rely on them. Only you are responsible for your money – anyone else won’t truly have your best interests in mind.

– Kim Iskyan, Publisher, Stansberry Churchouse Research

According to the 2018 Edelman Trust Barometer Global Report, Singapore is the fifth most trusted nation out of 28 countries. In Singapore, the level of trust in the government is 65 percent.

Guess what is the trust level of the Singapore media? It is only 52 percent. To win the trust of another half of the population, the media still has a lot of work to do.

Mistake #2: They leave it to others to make the buying decision for them.

Did you read my earlier blog post “How easy is it for Singaporeans to fall victim to herd mentality?“. Did it strike a chord with you?

Most people don’t think for themselves. Most people just go along with whatever they see in the newspapers or the TV or whatever their friends or teachers say. That’s a terrible, terrible mistake because most of those people don’t wind up being terribly successful in life.

– Jim Rogers

Isn’t it odd to leave the buying decision of the most expensive item you purchase in your life to complete strangers (property agents, industry analysts, the bankers, etc.)? These strangers are totally indifferent to your situation after your purchase. They only care about their company, their profit, their job and their commission.

In his 2015 book Second Chance: for Your Money, Your Life and Our World, Robert Kiyosaki explained that a coin has three sides: head, tail and the edge. Only if you learn how to stand on the edge, you can then be able to see both sides of a situation, to understand contrasting points of view, and decide what is right for you.

Can you tell the differences between a good adviser and a lousy salesman?

A good adviser never shows you only the head or the tail of a coin. Instead, he shows you both sides of the coin and ensures that you are standing on the edge of the coin to see the full picture.

A good adviser never talks about only the good things. Instead, he presents to you objectively all the pros versus the cons; the usual practice versus alternate approach; the conventional thinking versus the hard truth; the media report versus the actual fact.

A good adviser never makes the decision for you. Instead, he shares with you everything you need to know. He makes sure that you are a well-informed buyer before leaving it to you to make your wise decision.

Mistake #3: They buy because they can afford it.

You have saved enough for the deposit and you can afford the property. Or that’s what you think so.

The moment you sign on the Option to Purchase, you are also taking over all the risks from the seller: stamp duties, market oversupply, interest rate hike, negative immigration, market uncertainties, etc.

At the time of writing this post, almost 6,000 readers have read my blog post “When is the next market crash?“. There is something that I didn’t mention in the post. Do you know there are only two types of people who can stay intact in a market crash?

1. Those who think they can’t afford it.

When prices are spiralling up and the market is red hot, you often hear people lamenting that they can never afford private properties.

But what these people fail to see is: The biggest tragedy is not knowing that you can’t afford to buy a new condo.

The biggest tragedy is realizing one day that you have overcommitted and can’t pay up; that you end up with a negative asset (outstanding loan higher than property’s value); that you need to wait for 20 years to break-even.

You could have easily prevented this unnecessary tragedy happen in your life if you have taken my 3-3-5 rule seriously.

2. Those who think it doesn’t worth it.

Do you know the difference between “price and “value”? Price is the amount you pay for something. Value is what it really worth.

As Lauren Templeton & Scott Philips said in their book Investing the Templeton Way, “Identifying the discrepancy between what an asset is worth and its market price is the name of the game in every case”.

Rich people buy things based on the concept of worth. They can afford to buy many things. But they won’t pay for it if they think that it is not worth it. Likewise, if they see the value of an asset, they will find the means to acquire it.

Ordinary people can seldom tell the difference of price from value. They buy things based on their affordability. When they receive their year-end bonus, they immediately spend on something they want. Once they save enough for the deposit, they can’t wait to upgrade their car or their home.

– Property Soul, No B.S. Guide to Property Investment

Mistake #4: They don’t bother to look at the numbers.

Buyers should at least check two sets of numbers before their purchase: market numbers and ROI numbers.

1. Market Numbers

The property data include past transactions of new sale, resale and rental, vacancy rate and future supply in the pipelines. When these are all available online, why do people still make the property buying mistake of failing to check them?

Most people won’t bother to go to the URA website to check the original numbers after reading the recent articles about rise in property prices. That’s why I took the hassle to show how one can easily manipulate the property price index and camouflage the supply pipelines in my latest podcast “URA 1Q2018 Statistics”.

Another reason is the human instinct of confirmation bias. People tend to look for and interpret information that confirms their existing preconceptions, while filtering out information with opposite views.

It is not important to hear the right thing, but to hear someone saying the right thing at the right time.

2. ROI numbers

Property investors should calculate at least two things: 1) cash-on-cash return; and 2) net income for the first three years.

You may think that since you are buying for your own stay, maintaining a positive cashflow is not applicable to you. Don’t forget that your neighbours who buy for investment may have questionable holding power and rental return. Their decisions to cut loss and go for fire sale at the same time can directly impact the value of your home.

Mistake #5: They believe prices will continue to go up.

You may hear people saying the market has recovered and prices are going to go up from now.

Go back to study Singapore’s property history and find out exactly when and why prices go up or down.

If property prices go up in the long-term in developing countries, why buyers still make big losses along the way? If investors buy at the wrong time in developed countries, how long does it take for them to recoup their losses?

Developers are bidding land sites and acquiring en bloc projects at sky high prices. They are hoping to flip them and change hands to individual buyers at even higher prices during new launch.

, Warren Buffet predicted cryptocurrencies will come to a bad ending. The day before his annual shareholder meeting, he told Yahoo Finance why he was negative on cryptocurrency.

There are two kinds of items that people buy and think they’re investing. One really is investing and the other isn’t. Bitcoin isn’t. When you buy cryptocurrency, you aren’t investing when you do that. You’re speculating. There’s nothing wrong with it. If you wanna gamble somebody else will come along and pay more money tomorrow, that’s one kind of game. That is not investing.

Be honest with yourself. That property you are buying, are you investing or are you gambling?

P.S. My next podcast will be up this week. Subscribe to my Youtube Channel now!