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Fear of Overinvesting In Your Backyard

investing in backyardInvestors in the property market can sharply shift from making one great investment to an erroneous one. The reason why they are prone to error is because this is a difficult sector to master, and a dozen errors are waiting to ambush your every move. I have talked distinctly and lengthily about many such errors. Let me devote some time to this one- overinvesting in one’s own backyard.

Comfort factor

Why do you think we do it? I think the first reason behind this particular trend is that we are extremely comfortable in our own locality. More than it being a business investment, it seems like an emotional choice. There is also a definite fear of stepping out of our comfort zone.

Complacency and illusory confidence

Secondly, we tend to believe that we know our area well and we can capitalise better when its economy booms and minimise the damage when it’s down. This confidence, however, might turn out to be illusory in nature. There’s an old Oriental saying that goes ”only those people miss the train who live very close to the railway station” or something along those lines, and that very much applies here.

DIY-centric attitude

Thirdly—and by no means is this the final one—, there is the fact that when we invest in our backyard we tend to assume that we can do it ourselves. I know there are many amongst the investor fraternity who do not require expert help (or they can afford to think so at any rate) there are many who would come undone without expert help. When we step out of our backyard, we use expert opinion as an umbrella and a shield but when we are in our own backyard we ignore this umbrella because of the sense of complacency a familiar investment environment brings out in us.

Lack of investment-grade properties can hurt

So what do we lose? Okay, what if the area we live in does not have a fair percentage of investment-grade properties? In the given case, we will buy many units and single dwellings only to find the capital growth and rental yield suffer and our portfolio subsequently getting compromised.

Why are properties cheaper? Think!

We really like the fact that properties are cheaper in our area, but do we sit back and think why this may be so? Isn’t it because the properties do not drive buyer attention at all and can come a cropper when resale time comes? The property market has beautiful pearls spread along the way but there are errors you have got to abstain from. It is like that chessboard where you only need to jump from one white square to another. Think!

Have you ever been hurt by the move of overinvesting in your backyard?