Pain Vs. Pleasure: Evaluating Risk Tolerance in Real Estate

In a previous article we discussed some of the risks and rewards of real estate investing. While writing that article I very quickly discovered that there is no “right or wrong” answer when it comes to a magic formula to deciding which deals are too risky for the rewards offered. The ultimate voice that makes the final decisions between risk or reward, buy or pass, take action or don’t is your own.

So why can one person’s risk tolerance vary so wildly from another person’s? One rational investor’s decision to take a risk on a certain deal may make complete sense to that investor, however another equally seasoned investor is running away from the same deal. Both investors are right in their own minds and both investors get exactly what they want, gain pleasure and avoid pain.

It was only after listening to Tony Robbins on audio book and understanding that humans are naturally “instant gratification” creatures that I understood why some investors seem so motivated while others never seem to do anything. All people take actions for two different reasons in this world, either to avoid pain or increase pleasure.

Pleasure: This topic I believe has been discussed to death, over analyzed by countless books and most self-help gurus. Don’t believe me? Have you ever noticed all the solo sections or complete books that deal specifically with “Goal Setting.” Goals, whether long or short-term are simply a list of unique pleasurable consequences (with dates) each of us are striving towards.

Pleasure is tricky; be aware of the consequences of your so-called pleasurable actions. If you choose to watch television when you know you should be making offers on properties, the pleasure here is simply to avoid the immediate pain of taking action. If you choose to keep acquiring immediate gratification through procrastination you are only stealing from your potential free time in the future and are delaying your goals.

Pain: As human beings most of us do not like the feeling of pain in our bodies, the same goes with our mind. We often spend countless dollars trying to cure or repair our outward/inward problems and pains. Often times we are such instant gratification junkies that we fail to see how to use our short-term, temporary pain to get what we want.

Often times the best way to avoid long-term pain (nervousness, anxiety, fear, worry, poverty, ignorance, doubt, self defeat) is to face it head on. Which of the following two scenario sounds more appealing to you; Working for the next 40 years at a steady job which you excel but do not have a passion for, or begin in a new career that requires you to take action, learn new skills and take risks to potentially make a lucrative income far beyond your 9-5? (Remember there are no right or wrong answers.) Both answers come with their own unique sets of pains and pleasures.

Let us assume that the question above is a “No Brainer” and you want to dive right into your new career (whatever the field). This “new career” life path puts you into the driver’s seat to determine where your immediately future is headed. Do you head towards pain or away from it? When you take control of your future you take responsibility for BOTH your long-term and short-term pleasure. Often times you must purposefully take uncomfortable trips through short-term pain to create long-term pleasure in the future.

What do I mean? Over the hundred transactions I have been a part of, less than five percent of these deals just fell into my lap from being at the right place at the right time. You must choose to purposefully put yourself in harm’s way, to allow yourself to talk actions, to take risks, and to ultimately fail until you succeed.

Every day you wake up you will continuously need to make the decision for your financial future; develop a low pain tolerance for working until you turn 65 at a traditional 9-5 job. This low pain tolerance will give you the perpetual strength to make procrastination and fears a thing of the past, or at least easier to overcome.

Be aware that this battle is not fought only inside the home or in the workplace, it is fought within your mind. The decision to pursue temporary pain to possibly insure a future of pleasure is a constant mental battle. Over time the “Pain Vs. Pleasure Meter” in your brain will slowly adapt to preferring whatever seat you take, passenger or driver; so continuously aim for working on your business now and therefore freeing yourself from long-term pain later. Success will follow.

– J. Fed

Photo: jurvetson

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.