The Psychology Behind a Love for Property Investment

Have you ever been unable to make a decision, even after writing an elaborate pros and cons list? Or have you ever identified the logical choice, but still had a feeling it wasn’t the right one? If so, you’re probably familiar with the fact that feelings can trump rationality.

95% of your behaviour is driven by subconscious motives. Research suggests that we don’t really know why we do the things we do. When you’re “going with your gut,” you might find it hard to explain why you’re choosing to do so. And even if you were able to articulate it beyond “I just have a feeling,” you’re likely to be wrong. According to Dr Robert Zanjonc, when you explain your decision making process, you’re simply rationalising unexplainable behaviour with reasons that sound probable.

But that might not be entirely true. Scientists generally agree that all human behaviour is set in motion by two simple forces: pleasure and pain. We want to seek pleasure and avoid pain. You might be attracted to money because you associate it with freedom, luxury and comfort. If so, you’ll devote your energy to creating wealth. You might be terrified of public speaking because you associate it with vulnerability, failure and judgement. If so, you’ll avoid it at all costs.

When it comes to investments, aside from the potential to create wealth, what pleasures draw us in? Take property investment, for example. What psychological appeals have the potential to spark our passion for investing in bricks and mortar?

The Psychology Behind a Love for Property Investment

1. Cognitive fluency

Translation: it’s simple.

Cognitive fluency is why we prefer things that are both easy to understand and familiar. It’s used to measure how easy something is to think about. In general, we would much rather think about things that are easy to understand than things that seem difficult.

So, when it comes to decisions, we gravitate towards the simple, more familiar choice - because it involves less mental energy. If something looks easy to understand, it’s usually because we’ve seen it before.

With property investment, from example, you’re likely to know your way around the basic terms; rent, buy to let, house. The stock market, on the other hand, is full of abbreviations and complex lingo; execution, uptick, rally. If you’re new to investing, this sort of jargon might be your cue to switch off and walk away.

And while seasoned investors might be more familiar with these terms, even the experts tend to gravitate towards simplicity. That’s why stocks with easy-to-pronounce names outperform stocks with hard-to-pronounce names.

In fact, if a stock’s name is easy to pronounce, it can be more influential in your decision process than a company’s level of debt, management and even revenue.

We look for cognitive fluency. It’s our little shortcut. Psychologists have argued that, in a world where our attention is constantly called for, we hand over our limited mental resources to what’s familiar.

2. Tangibility
   

Translation: you can see it and touch it.

Property is a real asset. It’s concrete. It’s physically set in stone and stuck to the ground. You can assess it from all angles, take photos of it, walk around it.

According to Investopedia, “Real assets, also sometimes called hard assets, can play an important part in any investment portfolio - including those focused on safety and income.”

Compare this to bonds, where you can only really touch the paper that they’re printed on. They’re considered to be nominal assets - not hard ones. Likewise, our perception of stocks and shares are more abstract. They’re translated into the real world as graphs, company names and figures.

In a study which attempted to understand the internet behaviour of homebuyers, scientists tracked the eye movements of customers viewing houses online. It may come as no surprise that customers overwhelmingly gravitated towards the photo of the house first and foremost. And by a substantial margin, too.

Other features, such as analysis from real estate agents, were distantly behind in importance. Perhaps our ability to independently perceive a property’s potential, based on its appearance, influences our decision more than expert opinions might.

The research also revealed that the property’s description was the second most common eye-grab. Customers wanted to read about the psychical characteristics of their potential investment, supporting the importance of tangibility.

Our senses are how we understand the world. Which is why we might prefer seeing exactly what our money is buying.

3. (Almost) instant gratification

Translation: we want things now.

Instant gratification is your brain’s desire to have things right away. Waiting is difficult. And we want to “experience pleasure or fulfilment without delay or deferment.”

If you had to choose between half a chocolate bar now and an entire chocolate bar tomorrow, you’re more likely to choose half today, according to scientists.

Considering how long it takes to save up for a house deposit and pay off a mortgage, labelling property investment as an immediate reward might sound strange.

However, a property’s potential to give you a steady, regular stream of monthly rental income is almost instant gratification; which is a potential perk that other investments might not offer. Provided your property is tenanted, your rental income acts as a regular cash flow top-up.

Patience is a virtue in the world of investing, which is why it has been paralleled to watching paint dry. Over time, house prices have the potential to rise. And for investors focused on capital appreciation, the art of waiting is usually necessary.

But in the meantime, you will still earn money from your tenanted property. So whilst you might have to wait some time for the whole chocolate bar, you can snack on some chocolate coins along the way.

Written by Jenna Kamal

Disclaimer and Legals

Property Moose does not provide any advice in relation to investments and you must rely on your own due diligence before investing. Please remember that property prices can go down as well as up and that all figures, rates and yields are projections only and should not be relied on. If in doubt, please seek the advice of a financial adviser. Your capital is at risk if you invest. This post has been approved as a financial promotion by Resolution Compliance Limited.

Property Moose is a trading name of Crowd Fin Limited which is an Appointed Representative of Resolution Compliance Limited which is authorised and regulated by the Financial Conduct Authority (no: 574048).