24 Jun Beware of becoming emotionally involved.
Wait a minute! Before your partner gets hold of this and rips into me – I’m not telling you how to run your love life. I’ve had a few problems with that over the years so I’m definitely not throwing my hat in the ring as an expert on that subject.
I’m talking about not becoming emotional when crunching the numbers on a project. It could be a reno, splitter or up to an apartment block. I see it happen regularly and it seems to pop up for two reasons.
Firstly it can be a by-product of impatience. I’ve seen people who get impatient because it seems to be taking too long to find the right deal. They’re sick and tired of binning deals that don’t stack up.
When they get one that comes close to looking like a deal, say a four-pack, they jump all over it with unbridled enthusiasm. The problem is, it’s coming up short. Maybe showing 14% margin (profit as a % of costs) when you need 18% – 20%.
That’s when the emotion kicks in. They can’t let it go. They’re invested – in time and effort and they’ve waited too long. So they go for the easy fix. They convince themselves the market will move up by the time they have to sell.
So they think, let’s add 5% to the selling price, the market will pick it up. And why stop there. Surely, they can find a builder hungry for work or just one to beat down. So let’s knock 5% off the build price. Bingo! 14% turns into 20%.
Then there’s the other emotion when you fall in love with a deal. Maybe you’ve waited forever for this site to come up. Emotion and a good dose of ego take over. This will be your signature project.
The design, the look, the feel – everything will point to you as a successful property expert. It’s going to look great on the home page of your website, all your peers will be super impressed and pay homage.
The problem is, it’s a 14% deal too. So you go through the same exercise and the same mistake as the impatient desperado. Both cases are fueled by becoming emotionally attached to the outcome, albeit for different reasons.
Resist. Train yourself to be cold-hearted and ruthless with your numbers. They won’t mind, numbers like that sort of treatment.
So there you go. Feasibilities can be cold and heartless, as they should be. Be as loving and as emotional you like, just save it for someone who cares.