The instincts that help you pick a good home can lead you to a poor investment. Choosing well means judging every property as one part of a portfolio, not as a place you’d live.
Most Australian investors learn property as homeowners first. They inspect on Saturday mornings, picture where the couch would go and trust the feeling that a place is “the one”. That instinct serves an owner-occupier well. Carried into investing, it quietly distorts decisions.
The trap shows up in small choices. One investor pays extra for a renovated kitchen they love, even if tenants in that suburb won’t pay more rent for it. Another buys near where they grew up because the streets feel familiar. A third holds a weak performer for years because selling below the purchase price feels like failure.
Each decision feels reasonable on its own. Together, they turn a portfolio into a collection of personal preferences. The shift investors need is from homeowner to allocator: someone who treats each property as capital placed to earn a return.
Evy Sia
Why owning something makes it feel worth more
Behavioural finance calls part of this the endowment effect: we value things more once we own them. In a 1990 study in the Journal of Political Economy, economists Daniel Kahneman, Jack Knetsch and Richard Thaler gave coffee mugs to half a group of students. Owners asked far more to sell a mug than others would pay to buy one. Far fewer mugs changed hands than economic theory predicted.
Property is not a mug, but research suggests the bias holds at much higher stakes. Economists David Genesove and Christopher Mayer studied downtown Boston apartment sales in the 1990s. Owners facing a loss against their purchase price set higher asking prices and sold more slowly than other sellers.
The detail that matters for investors: the asking price effect was about twice as large for owner-occupiers as for investors. Investors were not immune. But the results suggest a more detached relationship with the asset goes with less distorted pricing.
What attachment costs a portfolio
Emotional buying rarely shows up as one big mistake. It shows up as a series of small costs that compound.
Paying more for features you like, but tenants don’t value, lowers your rental yield (the annual rent as a share of the price you paid). Holding an underperformer because you can’t accept the loss keeps capital in an asset that may be doing less than it could elsewhere. Buying only in suburbs you know can concentrate a portfolio’s risk in one local market.
Bruce Guan
Scale is the other cost. ATO taxation statistics show about 2.3 million individuals held an interest in a rental property in 2023-24. Of those, 71.6% held one property and 0.9% held six or more. The data doesn’t say why most stop at one, and income, borrowing capacity and life stage all play a part. Decisions made on feel rather than numbers are one more reason a first property can end up limiting the second.
The allocator’s filter: four questions before you inspect
An allocator settles the criteria before seeing a property, so the feeling at an open home has less to work with. Four questions do most of the work.
- What job does this property do? Decide whether you’re buying mainly for capital growth, rental income or a balance of both. A property can be pleasant and still be wrong for the job.
- Do the numbers work before you visit? Check comparable rents and sales and run the cash flow first. If the deal only works once you’ve fallen for the light in the living room, it doesn’t work.
- Who is the tenant or future buyer, and is it you? Your taste is a sample of one. Look at who rents and buys in that area, and what they pay for.
- Would you buy it today, at today’s price? For a property you already own, ignore what you paid. That number is a sunk cost (money already spent that you can’t recover). Judge the asset on what it’s likely to do from here.
Making the shift stick
Write your criteria down before you start searching, and set a walk-away price before any auction or negotiation. Committing in advance makes it harder for an attractive kitchen to rewrite the plan.
Review each holding once a year using the fourth question. A property that fails it isn’t automatically a sell, since selling has costs of its own. But you should be able to explain why you’re keeping it in terms of returns, not memories.
A second opinion helps too. A buyer’s agent, mortgage broker or financial adviser has no attachment to the suburb you grew up in. That is the point.
Allocating doesn’t mean you have to stop caring about property. It means caring about the right things: what the asset earns, what it costs to hold and how it fits the rest of your portfolio.
