Property investors. Don’t do this – analysis paralysis

One of property investors’ most significant mistakes is thinking “too much” about their investment before they pull the trigger.

Because if you over-think an investment … you’ll often not pull the trigger.

It’s called “analysis paralysis” – and it’s when you over-think or over-analyse an investment to the point where you don’t do anything at all.

Sure, making a sound investment decision requires research (you don’t want to point to any old property and go: that one).

But at some point you must also get out of information-gathering mode and start investing.

In this article you’ll learn why some investors get stuck in “analysis paralysis” and what steps you can take to free yourself from this mindset.

Do you have a question or comment about analysis paralysis? Feel free to leave your thoughts in the comment section at the end of the page.

What’s wrong with analysis paralysis?

A few things could happen if you spend too much time thinking about investing rather than buying properties.

#1 – Regret

In 2043, some 20 years in the future, you might wish you’d bought that property in 2023.

You might look at how much house prices have grown and think, “I should have invested when I had the chance. My life would be so much different if I had more money.”

#2 – Wasted time

You don’t get a financial return from simply crunching property numbers. You need to buy a property to get the gains from it.

So, if you are spending a lot of time researching (but not doing), you won’t get a return from your time. You're wasting your time if you constantly study but don’t invest.

#3 – Missed opportunities

Let’s say you want to buy a property and have found a good opportunity. But you want to keep researching and thinking about it before investing.

There is a good chance that another investor may pip you at the post, invest in that property and take that opportunity away from you.

Investors who have analysis paralysis often miss out on good deals and need to go back to square one.

#4 – Stress

Eventually, the indecision and stress could get the better of you. If you continually research, you may start to second guess and doubt yourself. This can further delay the decision to invest.

Case study: “Investor wants 100 properties but hasn’t bought one”

Here is an example of how over-thinking can halt your investment dreams.

Here at Opes we’ve worked with a wealthy, high-income couple for a while. They dream of building a significant portfolio – over 100 properties. And they have the money to do it.

But their ambitions are not being met with action. They have yet to buy their first property.

Every time they get close to investing, they want to continue researching.

This couple has made their substantial wealth through owning businesses. So, investing in property and getting used to the idea of “good debt” takes some time.

To be clear, they’re not bad people. They’re not dumb. They’re not intentionally doing something wrong.

But their focus on finding the perfect investment is stopping them from starting in the first place.

This shows it’s not enough to have the money and the ambition to build a portfolio. You’ve got to start too.

What’s the ideal amount of research?

Just how much research is too much? And how much is too little?

Scenario #1 – Not enough analysis

Let’s say you drive down the street and see a property. You choose to buy it as an investment because it’s just down the road from you … and your property has increased in value.

That is not enough analysis.

Just because you like the street (or the area), you live in doesn’t mean the New Build townhouses a few doors down will make a good investment.

Scenario #2 – Too much analysis

Now let’s say you are on Trade Me every night trying to analyse every single property on the website.

That’s probably too much analysis. You cannot analyse every property on New Zealand’s largest real estate website.

Trying to look at every property to try and find the “best” investment is not a good idea. You’ll never end up investing at all.

If you’re trying to analyse 20 properties at once – you’re probably looking at too many.

Scenario #3 – Just the right amount of analysis

Otherwise known as the “Goldilocks zone”, the ideal situation is to:

• Figure out which properties you want to invest in (identifying their typical characteristics)
• Research properties that meet those characteristics and find 5 potential properties
• Run the numbers on these properties to see which is the best investment

Your research will be based on your buying criteria, and you’ll run the numbers using a spreadsheet.

How do I overcome analysis paralysis?

Many investors may be reading this article thinking: “Oh gosh, yup, that’s me. I’ve been talking about buying a property for years ...”

Don’t stress. Even seasoned investors get stuck occasionally.

Here are the 5 steps you can take to get yourself moving.

Step #1 – Set clear investment goals using my wealth plan.

To be successful, you need clear investment goals. This will focus your attention and give you a reason to invest.

You can use any method you like, although here at Opes Partners we use our in-house software, My Wealth Plan.

This allows property investors to set a goal for their long-term financial future and see whether they’re on track.

My Wealth Plan is now available to the public for free. Click the link to try it out.

Step #2 – Set your buying criteria

There are over 35,000 properties currently available for purchase on realestate.co.nz. You can’t check all of them.

So you need to determine what you’re looking for in a property. If you want to buy a New Build, you might decide to look for 3-bedroom townhouses in West Auckland.

If you want to renovate a property, you might look for a 2-bedroom house with a floor plan of 85 square metres. That would typically allow you to add an extra bedroom.

Setting these criteria will give you a better chance of finding the right property type.

If you’re working with our team at Opes Partners, they will help you create these buying criteria based on your strategy.

Step #3 – Run the numbers on your properties

You need to run the numbers on your properties and have a consistent measure to see which is best.

You might use a standard tool like gross yields, net yields, or annual cash flow.

Or you might use a return on investment spreadsheet as we do here at Opes Partners. Download our one for free here.

Using a consistent method to run the numbers for your property will help you make an investment decision without getting too emotional.

Step #4 – Build a team of trusted advisers

If you’re struggling with doing all this research on your own it might be time to bring in an adviser to help you on the journey.

This could be a property investment company like Opes Partners, but there are other property investment companies out there too.

You might also lean on the expertise of a real estate agent, lawyer, accountant, or even property manager.

All it needs is someone else you can turn to for advice on your investment decision. It will be essential to talk it out and have someone to hold you accountable for your actions.

Step #5 – Put the property under contract

This is the big one.

Sign the contract and put that property you are looking at under contract and complete your due diligence.

(Yes, it sounds scary, I know).

But, putting a property under contract does not mean you have to buy that property (if you have a due diligence or right to cancel clause in there).

Putting the property under contract gives you time to do additional research, think and then confirm it is the right property for you.

So, take the plunge and sign. If the property doesn’t stack up at the end of your due diligence you can walk away (with the right clauses in your contract).

But if it does, you have your first property in the bag. Congratulations.

What are my next steps?

It’s easy to get stuck when it comes to investing.

There’s often too much information, too many options, and too much money at stake. So it’s understandable that you might worry about making the wrong decision.

And for emerging investors, that first purchase is the hardest.

Don’t wait around for a “unicorn” property that is the best investment in the history of the world. After all, unicorns don’t exist.

The key message is that you don’t want to make a hasty or rash decision … but if you want the gains that come from property … you do have to buy a property.

Write your questions or thoughts in the comments section below.