What’s FOMO and why should you avoid it?

FOMO is very much the story of a significant portion of the Australian property investment market right now – especially in Sydney – but unfortunately for those investors who fall victim to it, it could all end in tears….

So what is FOMO then?

Wikipedia defines the Fear Of Missing Out as “a pervasive apprehension that others might be having rewarding experiences from which one is absent”. In other words, there are amateur investors who are being influenced by the headlines and making decisions to invest in property more about not wanting to miss out on “the party” that they observe (and in some cases only perceive) others are having rather from making a sound and unemotional decision to buy property treating it more like an event rather than being the process that it is.

The obvious place this is happening right now is in Sydney. Each week we are seeing stories of how people are making money weekly as house prices are growing from one weekend to the next and some prices reported being paid are quite staggering! Take this post on Facebook I saw yesterday from a property group in Sydney as just one example:

“I think the Sydney valuation world is in shock! 16 Janet Street Marylands, department of housing, 2 bed 1 bath fibro 696m2 block (not corner), low density R2, just sold at auction… hold your jaw… for

$1,276,000!!”

Seeing those results can easily make you feel like you’re the only one not at “ the party” but I’d caution everyone that it’s a wolf in sheep’s clothing as we have only to look at history to see that we are now in dangerous territory. After the Sydney boom of 2001 to 2003, that market was considerably flat from 2004-2007. Not only did the investors who arrived to “the party” late towards the end of ‘03 not enjoy any growth for a number of years but significantly, more than 60% of the suburbs who enjoyed the greatest gains both in percentage terms and real dollar terms during the boom ending up giving back significant portions of their gains meaning that they were in a negative equity situation as well as no prospects for growth for the foreseeable future*. That is the worst outcome for any property investor.

Interestingly, whilst Sydney and its surrounds are the obvious example of this right now, FOMO still happens every week in every state of Australia. It could be as innocent as turning up to a weekend social function with your friends and the topic (inevitably) turns to the “great Australian BBQ topic” of property and one of your friends turns to you in confidence (or increasingly not so discreetly of late) and tells you they bought an investment property during the week and not only that but it is in fact the second one they’ve bought this year. Suddenly the conversation in the car on the way home with your partner takes a serious tone as you start to reason that “if they’re doing it, shouldn’t we should buy one too?”

But my advice is simple… don’t do it! Don’t buy because you fear you’ll miss the party.

After 15+ years as an investor and property investment advisor, I’ve personally seen too many cases of investors who have got into the market and lost money through great intention but poor execution. I look under the bonnet and monitor the performance of other peoples portfolio’s for a living. Sadly, their shame and embarrassment invariably means that they don’t talk to anyone about it or report it, instead bottling it up with all the negative health consequences that comes with that and as a result the amateur or first time investor doesn’t see the full picture. Like the gambler who only tells you about the wins and hides the losses it all leads to the illusion that investing in property is the nirvana to all things financial and the panacea to guaranteed riches.

Don’t get me wrong, investing in residential property (in my opinion) is Australia’s greatest wealth creator due to its relative simplicity because of its familiarity – after all we all have to live somewhere. But being simple doesn’t make it easy. And therein lies the challenge with FOMO. It’s a high value transaction that is being entered into with all the wrong triggers.

Perhaps we can all learn from a successful 80 year old property investor that I met this week who had more in net assets outside of his family home (in Sydney) than most people I meet. After a stimulating conversation that I would’ve been happy to continue for many hours, he reminded me that he doesn’t have a 10 year outlook but rather 3 years. He told me with that outlook you need to make sure that you don’t make any emotional decisions, to “look before you leap” and know what you’re getting yourself in to. Being a borderless investor and looking for the best opportunity given his stage of the life cycle he said it would be “complete madness for me to think about buying in this Sydney market right now”.

Timely wisdom indeed from someone who has seen a few real estate cycles in his lifetime…