Most of us are a bit like sheep. It doesn’t sound nice to put it so bluntly, but when it comes to investing and making big decisions about money we like to follow the herd. The reason is fairly simple. When making really big decisions with potentially expensive consequences we seek affirmation from others that we are doing the right thing. Often we have to make decisions based on incomplete information, which makes the job even harder.
Can you tell me, with absolute certainty, where house prices or interest rates will be in two years from now? You can probably make a good guess, and you would probably be right in assuming that interest rates will rise. After all, they can hardly go any lower than they are now. So it is probably safe to assume that buy to let mortgage rates will be higher in future. But forecasting things like property prices is a bit of a mugs game. And since none of us really know what the future holds we are reluctant to trust our own judgment and instead prefer to just go with what the crowd is doing. That is especially easy when everyone we know seems to be making money doing the same thing. A couple of years back in Britain and it seemed that property prices could only keep going up. Well we all know how badly that story ended.
But if you want to actually make some real money in investing, you have to be prepared to go against what the crowd is doing. You should, in the words of Warren Buffett, be fearful when others are greedy and greedy when they are fearful. Unfortunately that is easier said than done.
The first thing you have to note is that even when getting specialized buy to let advice, the person giving you financial tips or advice probably has no better idea of what the future holds than you do, in terms of what the best buy to let mortgage deals are. Did you hear many estate agents warning about a property bubble that was about to burst before it did? I didn’t. On the contrary I heard property agents mainly trying to talk up property prices. Naturally their arguments were supported by fancy charts and graphs and well-reasoned arguments about how there is a shortage of accommodation in the UK. It seems all of that was guff.
The hardest part of making money in this industry is being prepared to ignore most of what you are told and to make your own decisions. If you can do that, you are on your way to being successful.