6 tips to avoid FOMO and FOOP (fear of over-paying) in property

Philip Ryan

Trilogy Funds

Few people planning to buy a home or investment property in the last 12 months would have been immune to the contagious wave of FOMO (fear of missing out) currently sweeping Australia and much of the world.

2021 saw the property market reach new highs. In November 2021 we saw the busiest auction week in Australia since records began in 2008, thanks to the rapid price rises fueling – and fueled by – FOMO fever.

However, experienced observers know that property booms are just that, a boom, and at some point prices will begin to correct, often leading to a sudden outbreak of FOOP (fear of over-paying).

The Australian property market follows a cycle. While this can vary in length (economists say around 8 years is the average), it always repeats the same four stages of expansion, correction, contraction and recovery.

And there are some early signs that the cycle may now be approaching a peak. While auction numbers are high, clearance rates are softening, and some of the big banks are predicting house prices may stop climbing in 2022 and fall between 5% and 10% in 2023.

FOMO can be dangerous when it spurs buyers to act impulsively and take risks they would normally avoid. Desperate to get a foothold in the Australian property market, they may be tempted to buy homes they would not usually consider such as those on busy roads, near train lines or situated on flood plains.

Exceeding budgets is another common mistake, leaving new homeowners with insufficient funds to cover costs such as stamp duty and moving bills, or to finance much-needed repairs and renovations.

Overpaying at the top of the property cycle is another FOMO-inspired move that can backfire when a heated market cools – which there are good reasons to expect may occur in Australia in 2022-2023.

Fixed and variable mortgage interest rates are climbing, regulators are making it harder for some borrowers to get home loans, and buyers are simply reaching the limits of what they can borrow as wages growth falls behind the rise in home values.

Furthermore, inflation expectations are now the highest in years, and any big increase in the consumer price index could result in the Reserve Bank of Australia lifting its cash rate much sooner than expected, putting additional upward pressure on interest rates for home loans and weighing on house prices.

Six tips to help you avoid the FOMO and FOOP traps

1. Stick to your strategy

Draw up a plan of what you want to buy and can afford to spend, and don’t let fear drive you to compromise on your list of must-haves.

2. Don’t take the clickbait

Ignore the hype, all those breathless media stories about eye-watering price movements and overnight millionaires are simply distractions.

3. Look at the big picture

Evaluate where we are in the long-term property cycle, and ask yourself whether current trends, such as pandemic-inspired lifestyle shifts, are likely to strengthen or wane in years to come.

4. Get a second opinion

Consider asking advice from family, friends or outside experts who have experience with buying property and aren’t feeling the FOMO.

5. Keep saving hard

Knowing that your deposit nest egg is growing, reducing your future interest repayments and lenders mortgage insurance bill, will help to reassure you that you aren’t really missing out at all.

6. Consider your options for earning income on your savings

Would-be homebuyers accumulating funds as a future down payment on their properties face challenges in earning income on those savings in the current low interest rate environment.

One investment option is to invest in a professionally managed investment fund that meets your particular financial goals, risk profile and investment timeline.

If you’re a potential home buyer planning to ride out the FOMO and wait for the property cycle to change, a managed fund could be away to earn income. 

How Trilogy Funds could help you

As one of Australia’s leading property-based fund managers, Trilogy Funds operates a range of funds that aim to provide investors with competitive returns.

These include the Trilogy Monthly Income Trust, which returned a net distribution rate of 4.90% p.a.* for January 2022 and the equivalent of 5.50% p.a.* for the last 12 months, and the Trilogy Enhanced Income Fund, which paid investors a net rate of 2.25% p.a.* for January 2022 and the equivalent of 2.95% p.a.* over the 12 months to 31 January 2022. You should note that past performance is not a reliable indicator of future performance. 

Trilogy Funds’ managed funds don’t require you to commit substantial capital: the minimum investment in the Trilogy Monthly Income Trust is $10,000, while the Trilogy Enhanced Income Fund minimum investment is just $5,000.

Before investing in any managed fund, be sure to read the relevant Product Disclosure Statement (PDS) and Target Market Determination (TMD) to ensure it is a good match for your needs. You should also make yourself aware of the risks involved in any investment.

For example, most managed funds will require you to give notice before withdrawing your investment. By checking what terms and conditions apply, you will know the processes you need to follow to access your funds when the right time comes to make a down payment on your new home. 

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** Annualised rate paid to investors net of management fees and costs and assuming no reinvestment of distributions as at 31 January 2022. Rates are calculated daily and paid monthly in arrears. Net distributions are variable. Please note, past performance is not a reliable indicator of future performance. This article is issued by Trilogy Funds Management Limited ABN 59 080 383 679 AFSL 261425 (Trilogy Funds) as responsible entity for the Trilogy Monthly Income Trust ARSN 121 846 722 and Trilogy Enhanced Income Fund ARSN 614 682 469. Application for investment can only be made on the application form accompanying the Product Disclosure Statement (PDS) dated 17 December 2018 and by considering the Target Market Determination (TMD) dated 1 October 2021 for the Trilogy Monthly Income Trust ARSN 121 846 722 and PDS dated 28 July 2020 and TMD dated 1 October 2021 for the Trilogy Enhanced Income Fund ARSN 614 682 469 available at www.trilogyfunds.com.au. The PDS contains full details of the terms and conditions of investment and should be read in full, particularly the risk section prior to lodging any application or making a further investment, together with the TMD. All investments, including those with Trilogy Funds, involve risk which can lead to loss of part or all of your capital or diminished returns. Trilogy Funds is licensed to provide only general financial product advice about its products and therefore recommends you seek personal advice on the suitability of this investment to your objectives, financial situation and needs from a licensed financial adviser. Investments with Trilogy Funds are not bank deposits and are not government guaranteed.  Livewire gives readers access to information and educational content provided by financial services professionals and companies (”Livewire Contributors”). Livewire does not operate under an Australian financial services licence and relies on the exemption available under section 911A(2)(eb) of the Corporations Act 2001 (Cth) in respect of any advice given. Any advice on this site is general in nature and does not take into consideration your objectives, financial situation or needs. Before making a decision please consider these and any relevant Product Disclosure Statement. Livewire has commercial relationships with some Livewire Contributors.

Philip Ryan
Managing Director
Trilogy Funds

As co-founder and Managing Director of Trilogy, Philip is responsible for leading a cohesive and high-performing team across Trilogy’s three offices, overseeing business compliance, and developing product offerings. He sits on the Compliance,...

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