Check Your Emotions At The Door, Newbies!

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As a beginning real estate investor, and even now, I realize the WORST mistakes that I suffered through occurred because of emotion-based decisions. I’m an emotional temperament, which means I can get caught up in the fervor more so than most. However, as I learn from my previous mistakes and lessons, I see that even though I remain emotional in my private life, I have become more and more emotionless in my real estate investing, and its been all for the better.

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Its Not YOUR Home

The biggest area that I was sucked into, as well as other new investors, is trying to buy in the place we want to live.

Now, on the surface that’s not an automatic disclaimer, but a deeper look shows that the hottest place to  live in town doesn’t always translate into a good real estate investment.

Yes, you can picture yourself nesting and inviting friends over, and walking to the local bar scene, but that doesn’t translate into a sound investment all the time. Always keep looking at the numbers, and choose strategically. The numbers should tell the story, and you have to put the nice shining house behind the one with the dirty carpets that need to be replaced, if the former gives you negative a cash flow and the latter positive.

Putting In The Wrong Tenants

Boy, have I made this mistake many times before before I wised up. Seriously, tenants I am a little embarrassed to tell other people I use, just because I was desperate for money. I mean, I had spent all this time and money, and I had to prove to myself and everyone else i could rent it out.

Big mistake!!

I put in tenants with shaky work history, and some tenants I didn’t really like, just because I wanted to make money now. Big mistakes that can and will cost you in the long run, when they can’t pay the rent, their rude, and you realized that if you were running this as a business, they never would have gotten inside your property in the first place.

Emotional Investment with Tenants and Contractors

This one comes up when you start listening to the when/where’s and whys someone isn’t paying the rent.

I used to listen, and I used to sympathize, and I would  to take my tenants problems as my own.

Big mistake.

I am not here to be a credit counselor, or your soundboard for excuses, I am here to run a business. This is my investment in my retirement plans, and that’s large enough for me to take my bleeding heart (and its under this hard real estate investor facade I have going on), and say, “I’m sorry to hear that, I will still go along with the paperwork, but if you pay by this date you can avoid an eviction.” Nice and simple, and you don’t have to spend the time wondering if the excuse their giving you is even true (I mean, why is it always lost in the mail?).

With contractors, sticky emotional expectations and disappointments made my work so much harder. Now, I accept that I thought I was getting a Maserati but a station wagon shows up. You can’t squeeze blood out of a turnip!

Yes, I am disappointed internally when I pay for a service and I think im getting the short end of the stick, but now I take a different approach.

I let the disappoint wash over me, and I decide two things: 1) I will accept they are not the best, and it will take longer/more expensive than promised, and I can live with that until the project is finished or 2) If its a contract that has many parts (where this usually shows up), I can end at strategic points if I don’t want them to finish. On point number two, I always try to have multiple payment schedule, so that I can see a logical break and payment point based on completed tasks.

Usually, I will stick it out with a contractor and not get so upset over it, but I am okay with the option to halt the project. My stress levels go down when I see things through this light. More and more lately, I modify the statement of work and contracts with more than the contractor gives me (logical break and payment points based on completed work, clauses on what happens when you’re late, clauses on what happens if they give the wrong estimate, clauses bonus for it they finish on time, etc), and I have to tell you, I love it. It takes emotion out, and puts in cold hard facts on what is expected. Those documents, based on my experience, get longer as I learn more, but they also keep my business a business.

This is a subject that a newer investor will learn the hard way, but if they can think about these issues from the beginning of their career, it will make their path a lot easier, trust me.

Photo: danielito311

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Lisa Phillips is the first video blogger that exclusively advises everyday investors on how to cash in on working class neighborhoods for higher profits with sensible investing strategies. You can visit her hours of free videos and tips On Google + Here!

21 Comments

  1. Yep, go by the numbers with investments. Even vacancy rates show whether or not an area is a desirable place people would want to live – but I tend to critique an area somewhat on how I feel being there. Wrong? Follow a process you already put in place with tenants. Know what steps to take in advance when rent is late, or when they are not taking care of the place the way you want, etc. No thinking, no emotions, just follow the process. Be like Mr. Spock from Star Trek ;-)

    • For sure. I am more and more Spock like (I wish I could go full throttle, but his level of detachment is hard to achieve) when it comes to business each year, although not necessarily like that in my personal life. It just makes my REI life easier.

  2. Great post, Lisa! I plan on using a property management firm, but I will need to keep my emotions in check when purchasing so the DIY bug doesn’t get me in trouble!

    • Spot on! Don’t get so wrapped up in things you’re too liberal on the numbers – assume worst case, and make the best case happen. I say this in so many areas of life – You Pay Now, Or You Pay Later (I usually refer to my work in IT as a developer, but I think it works in this case too!)!

  3. Good stuff! I hear you on the contractor thoughts. 2013 was my first full year doing rehabs, and I learned that you can’t possibly be too specific in the Scope of Work and contract. I use J Scott’s templates (wish I had them for my first one!!) and am getting better all the time, but I still need to drill down even more on the details.

    I’m sure I make the guys a little crazy when we’re walking through a house talking about what needs to be done, but it makes it SO much easier when all the details are written out on paper and no one needs to go by memory later … which, to get back to your point, helps cut down on the emotion!

    And yeah, I also experienced the disappointment of using a contractor who I thought fell short (who hasn’t?). But I like what J says in his book about accepting responsibility for every facet of a project. This is taking too long and is too expensive? That’s on me. I’ll figure out how to remedy it for the next time, either in my directives and contract or simply by using a different contractor (I had to do both). I find that when I take complete responsibility, that also helps ease the emotion out of it, maybe because it puts me in control. Instead of getting completely ticked off for extended periods of time, I step back and analyze. What went wrong, how do I fix it? End of story. Admittedly, I still get ticked – you can ask my partner about a couple of serious rants I went on last week! – but in the end, there is analyzing to be done. Keep the ranting to a minimum and move on!

    Anyway, great reminders, thanks!

    • Karin! Yes, this is it. My documents get longer and longer, and I absolutely love it. I can just repeat that its written in the contract and that’s how I want it to get done. Maybe you can share some of your more detailed contracts. Contractors remain my “weakest link,” meaning its the hardest place for me to be more consistent with expected results, so its the place where I am trying to constantly bulk myself up in – Serious rants, i’ve been there. I’ve stopped myself from threatening legal actions, but boy they can take you there!

      • Karin DiMauro on

        Hi Lisa – I would gladly share my detailed contracts, but I’d just be plagiarizing! haha I’ve been using J Scott’s templates for my projects and just working hard to make sure I’ve covered everything and been VERY specific (Ex: it’s not just “paint the living room.” It’s “prepping the walls and trim, including sheetrock repair; and painting the living room, including walls, trim, baseboards and ceiling.” Something to that effect. I’m still honing my communication skills. And I specify for each line item on the Scope of Work whether it includes labor and materials or just labor. Learned that one the hard way on my first rehab – my idea of included materials and my contractor’s were different. Then again, I also didn’t have J’s book, which touches on that subject.)

        Oh, and speaking of communication skills, I realize I talked about contractors throughout my earlier comments and then mentioned a couple of rants … but those rants last week were related to something else in our current project. I love what my contractor did on this rehab! Just felt the need to clear his good, albeit anonymous, name. ;-)

  4. This is a great article. My brother in law sent it to me because my husband and I are newbies to the rental property business. We bought our first rental 2 months ago, and a tenant that was already living there as been a constant headache. She was late on the first months rate, didn’t pay the second month’s rent (because she was in a car accident, yada, yada) and now finally paid that rent, but is wanting a payment schedule set up because she is late again. Every contract we come up with, she wants to adjust. I personally want to just call it quits, but my husband has a bleeding heart and wants to work things out. And these aren’t the only problems we have with her, but this is the biggest. So your article really hit home, and I will be sharing it with him later. Thank you!

    • Thanks, hopefully it sheds some light on the fact that how easy or how hard real estate investing will be for anyone, depends on how much of a business they run it like. If this helps make you make a more emotionless/contract lead decision, it may save you a lot of money, time and effort. Good luck, and give us updates!

  5. You can add this one to the list of Emotional Decision Disasters… I allowed feelings of sympathy for my brother-in-law who had been unemployed for years due to a back injury to seriously cloud my judgment. I wound up hiring him as a general contractor on a rehab project, thinking I could keep a better eye on things. HUGE mistake!

    Not only did he not have any experience in rehabbing houses, he was also in financial straits – a recipe for disaster if there ever was one. Of course the biggest goofball in this whole affair was me, and I cringe whenever I think of the checks I wrote to him directly, trusting him to manage the money and the contractors.

    Needless to say, I didn’t make a dime on this project and my relationship with my brother-in-law was strained to say the least. Lesson learned: Don’t let feelings for family get in the way of prudent business decisions!

    • Ah Martin, we the ones we trust turn out to be not so trustworthy! Its painful, but we grow stronger! Thanks for sharing, it inappropriately made me laugh since I can relate, but its definitely going to help others out there who are battling with similar circumstances. We are not the first ones.

  6. Lisa,
    I really enjoy your blog posts!

    I totally got sucked into your first point, “It’s not YOUR home” when I bought! I looked at so many houses before I decided on the one I ended up buying and even my realtor was like, “you drive up to it and it just has that feeling of home”!! And she’s an investor herself! At least it was in one of the better neighborhoods in my town and has paid off well for me. This was before I discovered BiggerPockets so my second one won’t be as emotional!

  7. We’re all human, right? We’ll continue to want to do this, but I think in time we will all get better and better at putting things in an investment/business perspective.

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