Investing in Real Estate Without Letting Your Emotions Ruin the Deal
I am going to venture to say that most of us who have started or will start investing in real estate are ill equipped to deal with all the hats it takes to be successful in this business. Here’s what I mean . . . each of us in our investing businesses may be any or all of the following: marketer, inspector, negotiator, book keeper, property manager, boss, selling specialist, etc. When you are working for someone else it is easy to be mechanical and perform tasks without emotion. Yet, as real estate investors we often forget that we are business owners and ultimately the decisions we make affect us and our businesses directly.
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One of the hardest things I had to wrestle with in the past is being too agreeable with buyers, tenants and sellers. Before real estate, I lacked real world training on how to properly run a profitable business, manage properties, or deal with customer/tenant issues and concerns. I have seen fellow investors start, fail, and leave real estate. These were investors that may have been too soft, too much of a pushover, or simply too gullible, getting beaten down by shady tenants, dishonest brokers, vindictive attorneys or cut throat buyers and sellers.
These obstacles are not something to be avoided. No matter how much we prepare or take cautious measures, natural objections are merely a necessary part of the business, management, and negotiating process.
Below is a list of examples where emotion, instead of reason determined the course of events, resulting in disaster. Don’t make these mistakes in your real estate investing!
When selling – Very early in my career I owned a 5 acre plot of land with a SFR located the middle of the tract. My knowledge was very limited at this time and I only had plans to rent the home out for a residual profit. Before I knew what had happened, it was 9 months later, I was on my third pair of tenants, and I had only been paid for two of nine months total rent. Needless to say that I was extremely frustrated with real estate and personally angry at myself for not being able to make it work. Not realizing, of course, that it completely had to do with my lack of education, mentoring, training, and the fact that I overlooked most credit checks. In the end I was so jaded by the whole deal that I sold it to the first investor I found. I broke even and the investor who bought my place wholesaled it for over $25k in profit. This is the story that sparked my real estate education transformation and personal development/growth.
When buying – I was negotiating a deal that I had found for a 3/2 block home that needed moderate rehab. I was one of the first people to make a bid to the seller for the property and got a verbal offer accepted. This was during the housing boom where anyone could make a fast buck by cleaning some windows and quickly reselling the home. I had my contractor walk through the property with me, as we formed a game plan to be in and out in less than 2 weeks. Right before we signed paperwork to seal the deal, the seller started entertaining higher offers from other investors. At this point I was too emotional about the property; I should have walked away. I felt that I had done too much work in order for the deal to slip through my fingers. The end result was that I ended up purchasing the home for forty thousand higher than my original offer and was barely able made my money back when selling.
When managing – I had a vacancy in a small property in a not-so-good area of town. I had gotten word from a tenant-buyer of mine that also lived in the area that someone at her church was currently homeless and looking for a place to rent or buy. This particular home had given me problems in the past and frankly, I was about fed up with it all together. My emotional frustration in this particular property compounded with the fact that these prospective tenants had three little girls and where currently living out of their van saddened me enough to lower my defenses and let them move in.
I knew I was giving them a great opportunity to own a home of their own. I also knew at the time that it was a very risky gamble, but I rationalized that they would jump on this chance to make a new life for themselves. Not only did these people not have jobs, they lied about looking for new jobs, forged disability forms and were most likely addicted to intravenous drugs. They lived in the home for two months before I got them out, never paying me a dime.
The ability to be resilient and learn from your past faults will make you great; you must at least try to operate your business like a Fortune 500 company. In all the above examples, the costly mistake would have never arisen if I simply had the courage to walk away. It is always your choice to remove yourself from any situation that leaves you feeling pressured to act opposite your logic and reason. It may help to envision stepping outside yourself and looking at the situation with a fresh pair of metaphorical eyes. It is not your responsibility to help the world, only those people whose situation/criteria match your business model. Ultimately you make the decisions that determine your financial future. Be careful, folks!
– J. Fed