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Don’t Fear ‘the Fear’ in Real Estate Investing … Embrace It!

by Clay Huber on June 14, 2013 · 20 comments

  

Fear is a human emotion that gets a bad wrap. People hear the word ‘fear’ and their mind automatically associates it with negative things. In some circumstances, this is valid; however, when it comes to real estate investing, I contend it is invalid!

Whether you are already doing real estate investing, or figuring out if you want to “jump in”, fear is something that you should pull along side you as a friend. Why would you want ‘fear’ as a friend? I personally can not think of a better motivator.

What will cause you to run as fast as your physical body can humanly run? My guess would be a grizzly bear. Now… WHY would this cause you to run as fast as possible: the fear of being eaten alive! As silly as this sounds (maybe a bit dramatic too), think about it… if there is no fear of being eaten alive, you may jog at a causal pace, or who knows, maybe just walk, and you’ll be eaten! The fear is the driving force.

So should be the case with real estate investing.

There are four common areas of fear in real estate that I’ve noticed over the years when either talking with people or cruising the message board forums. When looked at from the proper angle, these common fears are actually very good “driving forces”.

The FEAR of the Unknown When Investing in Real Estate

What am I getting myself into? What is going to happen? Am I being realistic? What will people think?

This are all legitimate concerns, but ask yourself, “How can I avoid being eaten by the bear” (Translation: what can I do to minimize the unknown factor?)

The best way to avoid getting eaten by the bear is something you have already done if you are reading this article: spend time at BiggerPockets. Read the blog articles. Read the message board forums. There is no better way to eliminate the unknown than to read about the experiences of others, but even better, learn about how/what they did about any bumps they experienced from these situations.

When I first got started, I loved watching/reading Case Studies from people. For me, this was a great way to see what actually occurs in the real world of real estate investing. The last place I would recommend searching for this is a guru course. They try and eliminate the fear of the unknown; however, they paint a very merry picture of how things are, so bottom line, avoid that sort of thing.

The FEAR of Networking with Other People in the Real Estate World

What should I say? What do we talk about? What if I look/sound like a fool? Will they take me seriously? I’m a shy person – I don’t like talking to strangers!

For some, this fear never crossed your mind. You are a social butterfly who could make a great conversation with an ant walking across the sidewalk. For others, such as myself, this was a massive fear due to me being shy by nature.

In my case, when I asked myself what I could do to not get eaten by the bear, my answer was quite simple: be honest and become whiz.

  1. Be Honest – when networking with other people, just let them know you are new and are still learning. If anything, most people appreciate this instead of you sitting there trying to BS your way through a conversation.
  2. Become a Whiz – pick a strategy and research it until you are blue in the fact. The keyword being “a” strategy. Don’t tell yourself you’re going to be a whoelsale-flipper-hard money lender-landlord. That is setting yourself up for learning a little about each strategy, but not enough to be able to present yourself in a professional way.

Bottom line, if you are nervous to talk with people, by becoming a master of the topic you are talking about, your shyness and reservedness will be replaced by confidence.

The FEAR of Losing Your Hard Earned Money in the Real Estate Market

What if I make a decision that loses me money? What will others think/tell me if they know I lost money? Am I gambling with my money? Is this a wise financial decision?

“How can I avoid being eaten by the bear?” – learn to love the numbers.

It’s as simple as that. If you are not a numbers person, then you better start becoming one or find someone you can trust who will help you out. Real estate is all about the numbers, and if you want any chance of avoiding the fear of losing money, you better take them seriously.

What are some practical ways of using this fear in your day-to-day real estate investing?

  1. Dropping the After-Repair-Value (ARV) during your analysis. Scared of losing money? Then hey, make your analysis extra tough and drop down the ARV. Does the deal still come out profitable?
  2. Dropping the expected rental income. If you knock off $25 from the area rental income average, how is your monthly cash flow doing still?
  3. Increasing the Days on Market. Are you calculating the “hold time” to be 4 months. What do your numbers look like at 6 months? 8 months?

Bottom line, if you are scared of losing money, then do everything in your power to make your analysis have upfront stress. Meaning, exaggerate the numbers AGAINST yourself (not in your favor) and see what happens. For more details on this concept, check out my article Make Your Real Estate Deals Less Stressful by Adding More Upfront Stress.

The FEAR of Failure in Pursuit of Your Real Estate Goals

This one can be summed up in one single question: what if I fail?

There are entire books written on this subject as it is the most common fear in human nature.

When the bear is chasing you, this is the fear that gives you the strength to take that one extra step when  you think your body can’t run any further. It’s the fear that allows you to take one more breath when you don’t think your lungs can do anymore. Yes I know, I’m being very dramatic. And since I’m not Shakespeare, let’s just look at some practical examples in the world of real estate investing.

  1. Make that extra phone call. Exhausted after a long day? Push! Make an extra phone call or two to the people that have left voicemails throughout the day. Who knows, those couple extra phone calls may be what ultimately separates success from failure.
  2. Get that extra bid. Sick and tired of contractors? Push! Dig and find another contract to set up a bid. Who knows, that extra bid may be what gets you a smokin’ hot deal, or better yet, finding an awesome contractor for future use (and future ultimate success).
  3. Screen a couple more people. Frustrated because your rental is sitting vacant? You just want to get it filled? Push! (opposite direction). Have some patience. Due the proper screening. Turn people down if need be. Who knows, by you don’t being patient enough, this could lead to a tenant that drives you to the point of saying, “Fine bear, you win, eat me!”

What is/was YOUR FEAR in Real Estate?

I’ve outlined four of the common ones I see, but I’m curious what fears you experienced or have seen others go through? More importantly though, how did you avoid being eaten by the bear?

Leave you comments below. Fear is running rampant, so I think it’d be beneficial to learn as much as we can about how to embrace the fear, rather then run from it.

Photo: Valerie

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{ 20 comments… read them below or add one }

Amanda Davis June 14, 2013 at 5:48 am

That’s the spirit!embrace and overcome what fears you and you will strived for success. Nice article Clay.

Reply

Clay Huber June 14, 2013 at 7:32 am

Thanks Amanda.

No need to run from fears, invite them along for the ride!

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Steve Burk June 14, 2013 at 7:33 am

Great read!

Just starting out myself, and I know a lot of these fears are going to pop up as I get going. I’m sure I’ll be referencing back to this post several times.

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Clay Huber June 14, 2013 at 7:36 am

You’re one step ahead of many Steve by acknowledging these fears “will pop up”. There is no such thing as a smooth journey, so bracing yourself for some bumps is the best way to approach things.

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John Andruszka June 14, 2013 at 7:35 am

Great article! Fear can hold you back or it can raise the adrenaline and get you going! Once you overcome your fear, you become an adrenaline junky and look for challenges. Those who dare, win!

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Clay Huber June 14, 2013 at 7:37 am

That is a really good point John.

As long as of course you don’t look for challenges that you have no business taking on. But I get what you’re saying!

Fear is no doubt an adrenaline producer!

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Sharon Vornholt June 14, 2013 at 8:32 am

Clay –

I think you summed this up well; become an expert in one strategy before moving on to another. Learn everything about it whatever it is. This will build confidence and the knowledge will help you make better decisions.

I am always conservative with the ARV and figure high on the repairs. I have never lost money on a deal. A few times I have wished I made a little more when something unexpected came along in my budget, but I just did a better job the next time with my new piece of “experience and knowledge” I gained on that house.

Sharon

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Clay Huber June 14, 2013 at 8:51 am

Great point Sharon. Besides just making you confident to overcome potential shyness, the other BIG PLUS is, like you noted, you will make better decisions… and yea, those are pretty important when it comes to long term success!

I’d say that is a pretty great “thing” you got going on. While you might not make as much as you had wanted, you are still GETTING PAID to gain “experience and knowledge”. I like that educational set-up quite a bit!

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Anthony June 14, 2013 at 8:53 am

Clay
Excellent article! I also agree with you & what Sharon said regarding becoming an expert in one strategy. I have found that you can’t be all things all the time (if that makes sense) If you are trying to learn multiple strategies & are all over the map the usual result is you learn just enough to be dangerous! Knowledge is power…. Stay focused on one exit strategy & you will gain the knowledge needed to make an educated decision, resulting in less fear!
Anthony

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Clay Huber June 14, 2013 at 8:57 am

Anthony, that makes perfect sense and I agree completely with you.

“Stay focused”, like you said, is exactly what needs to be done in order to learn a strategy, leading to higher confidence, leading to less fear. Great point.

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Roy Schauer June 14, 2013 at 10:28 am

I’ve found, for me anyways, that when too many things hit at once on a deal, and the overwhelming fear starts to climb, by making a list of the things that need to be taken care of and the prioritizing them helps to lessen that feeling. And the relief of checking them off as you work your way through the list replaces the fear with “I’ve got this under control.” Thanks for a great article!

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Clay Huber June 14, 2013 at 10:37 am

That’s a great tip Roy!

I do that very thing when I know I have a busy day approaching. Make a list of everything that needs to get down, and as funny as it sounds, you are right… with each “check mark” that I place next to the item as I complete them, it gives me an empowered feeling.

Thanks for the comment.

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Travis Daggett June 14, 2013 at 12:37 pm

Great insight! It’s funny, but I suffered from the fear of failure first. Then, after I did some deals, I became afraid of success! I wondered how I was going to keep the pace going, keep finding deals, buyers, private money, etc.
Now I see fear as bad, but caution, skepticism as good. Fear paralyzes, but caution protects. Skepticism forces you to ask the tough questions

Thanks for the article!

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Clay Huber June 14, 2013 at 12:47 pm

Thanks for the comment Travis.

You are right in terms of the traditional “fear” being bad, but even in your example, no one has any reason to be “cautious” if there is no fear in the first place. Point being, embracing the fear will cause you to be cautious, which as you stated out, is exactly what is needed :-)

I see what you’re saying though, and I agree 110%.

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Michael Dorovich June 15, 2013 at 12:49 pm

Great article! Growing up in the New York area, and having seen a few movies like ‘Goodfellas,’ I had the initial impression that, in order to buy real estate, you have to deal with the kinds of people you see in these movies. (ok, so that may be true sometimes) After attending many local real estate events, I was surprised to find how many investors are ‘normal, everyday people.’

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Clay June 24, 2013 at 12:58 pm

Great point Michael. It can be easy to “imagine” things about real estate (or any business) that simply aren’t true once you get out there and start doing work.

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Michael Dorovich June 26, 2013 at 4:38 am

Thanks! I just conquered my fear of seeing if html tags work with bp as well!

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Clay June 26, 2013 at 7:43 am

haha well done!

Steve Johnson June 16, 2013 at 9:12 pm

Clay,

Good article on the problem of fear. As a new investor I feel I run into it all the time. But I can look back at where I was a year ago and say to myself “look at how much I’ve learned. I feel much more comfortable going to networking meetings, picking up a book or article and critiquing it more, thinking critically about case studies.” Every time I’ve made a new step forward its usually not as terrible as I made it out to be, but still that’s the fear I’m stuck with all the time. Pulling the trigger or jumping off the diving board really does hold me back because I’m unsure of what will happen once I’ve moved on.

What I’ve found to be the most successful helping hand with taking the next step forward is to read some motivational material. Whether its a self motivation book, goal setting, or just a post about someone feeling good about their deal they just did I find that reflecting on the positives that can come from the situation gets me going in the right direction.

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Clay June 24, 2013 at 1:01 pm

Thanks for the comment Steve. I think that’s a great idea whenever you need a little “nudge” over any sort of fear. Pick up some motivational material and let that give you the final push.

Reply

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