Logic vs Emotion In Property Investing

When it comes to property investing, specifically choosing your strategy, should you take the logical approach or should you take emotion into account?

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0:00 – Introduction
2:13 – Logic can be powerful to keep you on track
2:45 – Sometimes the best logically strategy doesn’t work as it works against your emotions
7:04 – Investing in a way that gives you options as life changes makes strong emotional sense
10:41 – Your passion plays a huge role in your investment success
11:57 – Life changes, so what is logically now might not make sense in the future
14:55 – Emotional pressure can stop you from seeing through a logically good investment
18:40 – Getting capital growth AND cash flow is good logically and emotionally
23:08 – Make sure you have a strategy that takes advantage of logic and emotion

Transcription:

Ryan 0:00
when it comes to property investing and specifically choosing your strategy which is one of the biggest and most important things to get right when investing in property should you take the logical approach or should you actually take emotion into account so today i’m joined by ben everingham buyer’s agent from pumped on property

Ben 0:16
how i could and i’m definitely the logic side of this conversation today

Ryan 0:21
vulcan here live long and prosper man so many discussions in the past about logic versus emotions and taking that into account both for our own personal investing as well as for the buyer’s agency business and helping clients invest and just trying to work out okay what is the best way to do it for us as well as what is the best way to help everyone else do it and so it’s a really interesting conversation because when it comes to finances it’s almost all logic everything everyone talks about it’s so dry logic it’s all logic it’s all here is the exact right thing to do in a logical order yeah but we are so emotional humans and our lives get crazy and welwyn and things happen and so i’m very much to the point that emotion needs to come into your property investment strategy and the way you’re thinking and i have talked in previous videos as well about when you’re investing there’s risk not only in the investment strategy that you’re using the vehicle that you’re choosing the risks there but there’s also life risks and things that actually which is heavily influenced by the fact that i went through separation last year had to move states

Ben 1:33
stuff happening fully get it

Ryan 1:35
but for you i know that you have been logic for a long time i don’t know if you still completely logic

anymore i’ll

Ben 1:42
just say he gave out that like i’ve got a few stories that we’ll share towards the end of this about how many times emotion overrode logic with my wife picking up investments for us and how much better they’ve done the things that i’ve bought say you know like i’m i’m you’ve definitely swung me man like in the last five years or the things that you’ve taught me compared to where i was before that which was kind of like terminator this is like no way to do it but i was definitely the first time and like you know what have you learned

Ryan 2:11
but then also there’s some times where logic can be really powerful to keep you on track like we’ve had phone calls where you’ve called me up emotionally and you’re like i’m doing this i’m changing like my entire strategy and you’re like why and i’m like okay and then it’s like okay let’s bring it back to logic what are you trying to achieve through your life and it’s like okay logic capture and checking stopped you from making a big decision so i guess we’ll talk about the pros and cons of logic versus emotion you can’t be all one or all the other you need to involve both in your property investment strategy so let’s talk about logic because this really came up for us about 18 months or two years ago where we had the four properties to financial freedom strategy versus the two properties to financial freedom strategy we talked about now which essentially the same strategy but we just cut out having to buy two properties the same stuff we just cut out having to buy two properties and then sell to you just buy the two that you need for cash flow so the basically the same thing but this came about then where you were talking about okay logically it makes sense to buy your capital growth properties first and i was saying well emotionally that’s going to be difficult for people because there’ll be in a negative cash flow position i’m not sure where we’re gonna go with this look i

Ben 3:26
i completely agree with you man one two years ago it was very easy to get money today it’s very difficult and so we recognize that you know buying the growth properties made a lot of sense up front because the longer you hold them the sooner you can sell them in the future to pay off debt on cash flow properties yeah but you know four properties was us you know logically building a model of other people’s ideas like 10 properties or 130 like it was the old go being game where the reality is once you and i started digging into the average australians life like you and i we recognize that we only buy a couple of properties over a lifetime and most of our clients slash most people that we know aren’t going to go to property for so we’re going to have these two really high quality long term growth assets but you know they’re gonna have to stay in the job to hold them yeah and i remember you having that you know thought in the surf which was kind of just super logical which is one i’d own two homes with two granny flats get a really strong income stream and then take the pressure off yourself knowing that you’re going to be financially free in the future and it kind of blew my mind because i was from the old school because there weren’t videos or podcasts like this and i thought i had to own a lot of stuff and i thought owning more property meant something where now what i do know is that cash flow is absolutely key to choices and choices and i relate a better lifestyle sooner

Ryan 4:51
yeah and so i guess the old thinking used to be buy a lot get the capital growth and then live off that which logically can make a lot of sense maybe not right now because it’s such a yeah so when we’re in such a turbulent market and we’re not sure where it’s going to go then obviously that sort of strategy invest for growth and then live off the equity it’s probably not even viable but even looking at that sort of strategy of growth and live off equity from an emotional standpoint i never really agreed with because it’s very difficult for people to actually implement and come to terms with so to actually live off the equity of a property you’ve either got to sell the property or you’ve got to get a effectively a debt or an equity loan against that property to extract that value out i’ve never slept well on that why that’s so logically it makes sense that okay if the market continued which obviously were turbulent times now so i’m not saying that but if you’re getting the growth and you’re constantly getting this equity growth then you can pull a chunk of that to live off shore your debt goes up your repayments go up a little bit but your property’s continuing to grow and you can live off that and logically it makes so much sense but emotionally who’s going to be comfortable doing that who’s going to be comfortable getting into more and more debt consistently over time to fund their lifestyle it’s not something that i think is really realistic for people whereas cash flow and actually paying off a property and living off the rental income of that property and you’re getting equity growth as well which you may or may not need to access in the future but just being able to live off that cash flow is something that i know emotionally myself as well as you as well as so many other people out there it just feels good it feels cozy and warm and i flannelette sheets in the winter it just cuddles you and keeps you warm but yeah

Ben 6:44
like lacey and i had nana how about with some friends of ours that we grew up with or i grew up within sydney next week mark hobart in winter racing we’ve been looking at this happen it’s like five to 14 degrees and we went rushing into audi the other day to get some thermals like they had this winter weird sale and we were like those people at audi trying to get it that it doesn’t just make sense from that perspective man because to me i’m a person that likes options and the older i get you know i’ve got three children now two of them are going to be in private school next year you know it gets the reality is my expenses at this stage of life are a lot higher than they were two cars you know homeline two phones that all this stuff that just all of a sudden you’re like holy shit i need 100 grand a year minimum to survive now where it used to be like you know i could live off 20 grand a year and be fine yeah so the reality is like life changes from going into the more expensive stage of life and i like you know if i owned a property outright with great cash flow it’s giving me cash flow if i had to sell it it gives me a big chunk of cash and if i am in a really really bad position and i need a chunk of cash short term then i can potentially go to the bank and refinance it using equity now i was having a conversation with this incredible person from melbourne last week and their current strategy was buy for single income homes for about 500 grand ah rent them out for 350 bucks a week because you know that’s the melbourne equation unfortunately yeah

Ryan 8:15
at this point in time i don’t believe you can actually legally build and rent out granny flats in melbourne which makes the two properties to financial freedom strategy difficult down in victoria

Ben 8:23
yeah and she’s you know obviously you know everyone’s trying to create a vision based on what they know and i was like well you’re taking on $2 million worth of debt for 14 $100 a week of rent return and i said another strategy would be ryan’s idea of two houses two granny flats you know spend $1.1 million and that might sound overwhelming to some people to other people it’s like well that’s just two properties and still get you know 1200 to 14 $100 a week from those couple of properties and for me it’s like why would i go to work with that melvin strategy you know how long does it take you after tax to pay off a million dollars of debt and for me it’s just like that is the big oh my god moment like if i have less debt to pay off with higher rent than i can potentially and it’s still in a great market that gets me long term growth yeah i can chill out like that’s 20 years worth of work for the average person probably to pay off that extra million bucks after tax you

Ryan 9:24
know what i mean whereas if you’re in a positive cash flow position then your tenants are effectively paying it off for you and then you could do your 1.1 million so you’re taking on less debt or they’re gonna take on 2 million in debt anyway then you could maybe do for properties up in brisbane

Ben 9:38
maybe be at 2000 bucks a week worth of rent yeah

Ryan 9:41
so can be a very different situation so there’s definitely i guess logic to take in all strategy there needs to be logic behind it needs to make sense as to why you’re logically doing it and why it makes financial sense but you also need to take into account the emotions behind it so as we talked about pulling out equity getting into more debt that’s something that emotionally not a lot of people are able to do so you should take into account the fact that okay while that may be logical emotionally that’s not going to feel good for me and so i’m less likely to actually implement that strategy

Ben 10:17
i wouldn’t do it personally like by this date i know i don’t have the stomach to get myself in more debt to finance my lifestyle yeah just after reading rich dad poor dad i just i can’t from my gut align with that strategy but i know it’s been highly effective for a lot of other people so there’s again nothing wrong with it but i’m also not the guy that goes and borrows 100 grand to go buy a car from my home right you know what i mean there’s plenty of people that do that too and so

Ryan 10:41
the other emotional thing to take into account is i guess your emotional energy levels what you’re passionate about at the time as well as emotions in life and how life and situations can change super quickly so in terms of what you’re interested in and what you’re passionate about i’ve made a video on this talking about there’s people out there who are passionate about property like we are there’s people who are passionate about shares and you can look logically at okay which is going to be better property or shares but if you’re super passionate about one like i’m really passionate about property i am not that interested in shares i wish i was but i’m really not and so i could try and focus on shares saying logically shares are the better investment i could try and focus on that but i just it bores me i don’t enjoy it i have nothing against that and i wish i was passionate about shares but i’m not it doesn’t set my soul on fire so i’m not going to take extra steps i’m not going to stay up late at night listening to podcasts or episodes on investing in shares i’m not going to take any time out to do that whereas with property that’s something i am going to do with business with crypto that’s something i am going to do and i think knowledge is so important and so thinking about emotionally what am i passionate about and willing to invest my time into learning is a really big thing as well

Ben 11:57
you know another thing from an emotional logical perspective where i’ve learned it’s not just the changes in life because a lot of people feel secure when i look at their positions they are so far from secure and i you know if security for the family resides in one person having a job then that’s super dangerous if you don’t have a healthy buffer in place or a strong passive income stream and i never thought about that until recently like i was very much you know go accumulate more properties when i could afford them and if one or two of them were negatively geared per week i had no problem as long as they are growing in value but as i’ve gotten older i’ve seen more friends relationships changing structures you know as i’ve gotten older i’ve seen people losing jobs like instead of when you were 20 going through to 35 it’s kind of like the

Ryan 12:50
career progression yeah incomes constantly going up it’s like every year you’re either getting a small pay rise or you’re jumping jobs every two years or three years and then getting a jump in income that way

Ben 13:01
but now i’m starting to see people’s incomes plateauing which means they’re in you know motivation is dipping which means their performance dips which means they slide and i’m saying the reverse like of the bell curve and you know i look at like my grandma and my mom and stuff like that and i’m just like you know i can also see like the result of not making logical decisions very consistently over a long term period of time and where that actually puts you but you know the biggest thing that has been the aha moment for me is really looking back at what my parents did in sydney so 20 odd years ago maybe even more now 25 years ago they bought a really beautiful home at the time i think it was like we’re living in like this three bedroom home and then they bought like the seven or eight bedroom home it was huge right on the bush giant it was just like this dream yeah and the southern chart and get in and we i remember looking through it that day and just being like oh my god as a kid like there’s so many rooms and we’re running around the house and i remember hearing mom and dad like not consciously but looking back talking about how this home was about 40 grand more than they thought they should spend money on plus 40 or 50 grand more than a lot of other homes in the area now fast forward 20 years time they decided to make that emotional investment in quality quality straight quality possession of the suburb quality home that homes worth 1.2 1.3 mil and the home that they could have got for 40 grand less he’s only worth paying 50 still so there’s an emotional element which you can break down logically into what makes quality and that’s what you and i have done now like i understand what actually creates quality and i and i buy quality and it’s just those little lessons you know i mean that you see over time that there’s a huge other element that i was missing for a long time just looking at numbers

Ryan 14:55
but then there’s also another emotional element to that which is okay you over spend for a property that is higher quality that in 20 years is going to be worth you know 300 grand more okay so logically that investment makes sense but then emotionally it’s like okay well how much strain is that actually going to put on the finances of the household and obviously when you’re under financial strain that puts you under a relational australian as well why my

Ben 15:20
parents ended up busting out

Ryan 15:22
yeah

and then okay and who’s to say what would have happened in the future you know regardless and we’re not saying that that’s why it happens but for a lot of people when they’re under financial strain but everything in life gets worse relationships get worse and that’s one of the massive downsides of when you go through an economic recession that people don’t talk about which is all the financial pressure and how that affects relationships but even not even a recession but when you’re making financial decisions and investment decisions sure long term you may be better off but if it means that there’s lots of emotional pressure in the short term you might never get to see that long term again you might never end up in that point and i think that’s why i was always so passionate about cash flow properties because it’s like okay you could purchase properties that will have more capital growth but they’re negatively geared but how much financial pressure is that going to put on you you’ll probably stop a couple of properties whereas if you invest in positive cash flow properties and back then i was looking at regional areas not metro markets like we’re able to do today which is amazing but back then looking at regional markets okay you’re not going to get as much capital growth in regional markets so logically that doesn’t make sense but i understood from an emotional standpoint when you invest in a property and all of a sudden you’ve got an extra 50 or $100 a week in passive income and someone else’s paying off your mortgage it’s oh my gosh how good does that feel i don’t want just two of them i’m going to buy as many as i possibly can and so that’s a way of okay so logically if you went well this is back in the day so maybe not now but if you went that negative gearing route you get more capital growth long term you would make more money i always understood that emotionally that’s going to negatively affect people that they’ll actually stop investing and people can only run on logic for so long whereas if you invest in something like positive cash flow where is low ratio arguing that passive income you’re getting the good vibes and the good feels from your investment that you’re like oh i’m going to go again i’m going to work hard in my life to save more to have another deposit to invest again i’m going to take the time to go and see a mortgage broker on my afternoon where i could be gone the beach or the gym all of that sort of stuff leads you to buy more properties and ultimately even though you’re not taking the best logical investment approach you’re getting a better result at the end of the day you’re having a better journey as well and you actually make it to the end so many people don’t make it my parents invested in a negatively geared property in coronella and that was ages ago you know over 10 years ago but then it was negatively good they didn’t get the rental income that they wanted they didn’t see the results in growth that they want and because it was during a flat period and they weren’t able to hold that property and sold it before sydney grew so that property could have made them hundreds of 1000s of dollars especially during the last run out that sydney had like easily three to 400 grand in growth in that like little one bedroom unit but because of the emotions behind owning a poor performing negatively geared investment in the short term they didn’t make it

Ben 18:34
it’s so interesting that you say that bro because i i think for a lot of people in their lives right and a lot of investors like they are just so close like whether you’re at the stage where you’re starting to think about doing stuff and you’re just just there or whether you’re at the stage that you’ve done the activity now it’s just bloody boring and you’re waiting for it to happen and waiting for it to happen takes 10 or 15 years i mean automated most people and and what i’ve learned from building a portfolio now because i truly don’t believe that there’s just capital growth or cash flow anymore and i think you and i’ve debunked that you know we’re getting i think

Ryan 19:14
i used to be all cashflow used to be all capital growth yeah and like our relationship has been so good that we’ve been able to meet in the middle and find a strategy that does both

Ben 19:23
yeah you know like buying metro markets and houses is really smart because you know core logics data of history shows us that houses and metro markets do better than regional units or units and it’s like why wouldn’t you get both if you can and i think it’s only because we were open to just challenging the status quo and going and finding out how to make you know i’m an investor that wants everything like i want the property to cover itself from day one i also want to make you know some short term money through being a bit active with it and i also want the long um capital growth because i bought the right asset and when you don’t settle because like emotionally you have the right temperament to just go through the stuff that you need to to get to that point and logically you just keep digging into history and data until you find a way to make it all thread together it can be really powerful what you can do with investing now it’s very different than the old days

Ryan 20:21
i think that’s a perfect example to finish off this video because ben just recently invested in a property on the sunshine coast is that you’ve combined logic and emotion in that investment yeah logic in terms of the data the areas that you want to invest in the type of strategy the numbers the fact that you want to manufacture growth have positive cash flow and be in an area near the beach where you can get that long term capital growth as well so like you’ve ticked all the logic boxes but then emotionally that lines up with you so well as well because i know you you can’t get anxiety around properties by so investing in something where i think you got it under market value you manufacturing growth on the way in you’ve seen results in sales in the area and you know that your property has cost less than what these properties have sold for so you’ve built in that buffer you’ve got the cash flow so it takes all the emotional boxes as well to make you comfortable to invest it’s just that that’s like the perfect combo of logic mining out with long term strategy and financials and then emotion layout with short term emotionally how that’s going to affect you as well as long term just makes for something that is just going to propel your portfolio forward and make it more likely that you’re going to do that again without a

Ben 21:35
doubt and that’s such a powerful thing and it takes time to get to that point where you can make a decision and feel better about it like i was having a flare up a couple of weeks ago and lisa said to me like my partner knows me better than i know me and you do as well most of the time and i was just she’s like every time ben we get to this point in the build where you know because we’re building a dual income property on the sunny coast and she’s like we get to this point and you start to freak out because money’s going out but there’s no return coming in and you question everything you’ve done and she’s like just go back and have a look at why you did it what it could potentially do and i did that it took me like two minutes and i went you know what i mean like this because the foundation is there the right decision making and because we’re overlaying like the level of something a bit different for the marketing trading like an emotional benefit for the people that rent it from us it’s going to end up being far better than if i had been driving and or just lisa

Ryan 22:32
yeah so you and lisa like a good combo

Ben 22:34
for sure and most partners are right like one partner is generally loud one’s quiet like one partner is very analytical conservative the other partners like let’s just it’ll all work out like and that’s if you look at your relationships

Ryan 22:50
we get this relationship that’s exactly like that

Ben 22:53
every every meaningful long term relationship is where like two full circles i believe come together to create another full circle and the combined power is you know more than the individual

Ryan 23:04
yeah so yeah it’s really important that you have a property investment strategy that lines up with logic and that also lines up with emotion so when you’re setting your strategy make sure that you go ahead and do that if you do need help creating a strategy that does work for both logic and emotion and can get you to where you want to be financially long term as well as feel good in the short term then ben simon and the team over here at pumped on property are offering free strategy sessions so you can get on the phone to ben talk about your logic talk about your emotions and where you want to be and help design that strategy for you that you can go and implement and invest in the market with confidence whether you decide to hire pumped on property which obviously you can after that session or that’s a complimentary session you can just go out and you can implement that strategy yourself and there’s so many people that were spoken to that have you know never hired a buyer’s agent but they’ve been able to implement this stuff themselves and achieve great results so what you do is completely up to you but there’s definitely a resource out there if you want to so go to onproperty com au forward slash session you can learn more about that over there and there’s actually a calendar where you can pick a time that suits you so again that’s onproperty com au forward slash session go ahead and check that out this has been a really fun episode to do i hope that you’ve enjoyed it and until next time stay positive

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