If you’re not familiar with the age old British saying of someone being penny wise, pound foolish it basically means they focus too much on small sums of money and not enough on large sums.
I prefer to say penny wise, pound poor as those who suffer from this mentality lose more money chasing the small savings that they lose sight of the potential cost incurred by doing so.
A classic example of this is when you park the car, skip paying the meter and ‘run in’ to pick up Friday night’s dinner, only to return to a parking ticket on your windshield.
And you think, “Damn, the $3.20 seems so worth it now that I have to pay $50.00”.
We’re all guilty of it, and we live and we learn, but the repercussions are much more serious when it comes to investing in property.
To get my point across, let’s take Brisbane for example. 2015 is deemed to be Brisbane’s window of opportunity for real estate and it’s captivated investor’s attention all around the country.
An investor who suffers from the penny wise, pound poor mentality may have an investment property in Melbourne or Sydney which has done well over the years, but hears of positive cash flow properties which are also riding Brisbane’s wave of record capital growth.
While Melbourne and Sydney still have some growth left, the temptation is just too much, so they put their leg over the fence and sell their southern property for a tropical change.
While the southern properties may start to peak, flatten or even have a price correction, a penny wise, pound poor investor would believe they need to sell to position themselves into the Brisbane market.
Seeing as there are numerous selling expenses which could offset the gain, a smarter alternative would be to revalue the existing properties, identify the equity, then leverage into the Brisbane market using that equity as the deposit for the next property.
Investors who fall victim to this penny wise, pound poor mentality are blinded by the short-term savings, and lose focus of the big picture of retaining income-producing assets and creating long-term wealth.
The difference between investors who fall victim and those who don’t is the level of understanding of the principles needed to build a portfolio, and also the commitment to stay focused for the long-term.
It’s about being confident with the choices you’ve made and being happy with the results that those choices are achieving, while also understanding how to leverage the good results, and adjusting when needed on those properties that may not be producing the necessary outcomes.
To keep you on track and rule out the chances of this mentality, you could team up with a mentor. You’ll be able to tap into their patience and persistence in order to achieve your goals.
The lesson to be learnt from this is to always exhaust every possible scenario before you make your move. If you need guidance identifying those scenarios or forming a strategy, call us on 1800 600 890 to book a Strategy Session.