Real Estate Investing Basics

Real Estate Investors: Do You Exhibit These 5 Irrational Behaviors?

Expertise: Personal Development, Real Estate Investing Basics, Landlording & Rental Properties, Real Estate News & Commentary, Business Management, Real Estate Marketing, Mortgages & Creative Financing
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I had some fun with this week’s article by recording a video. I am so used to simply writing, so I wanted to change up my own routine a bit. Take a look at the video, and then be sure and connect below in the comments. I would love to hear some of your own irrational behaviors (hint: these are mine!), as well as your thoughts on how we can avoid them!

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5 Irrational Behaviors to Avoid When Real Estate Investing

1. Anchoring

Anchoring is when we rely heavily on the familiar to make decisions with which we are unfamiliar. We anchor to what we know, rather than seek advice or education. It just seems easier to do, rather than admit we need a little help.

2. Loss Aversion

Loss aversion describes the reasoning we use to justify riskier investments and strategies when they cost less money out of pocket. Our aversion to losing money leads us to choose riskier options that cost less because when we lose, we feel “less bad” about the loss.

The smarter decision may be to choose the investment that costs more dollars, but comes with less risk.

3. Gamblers’ Fallacy

How often do we make decisions and rationalize those decisions by citing some random occurrence or chain of events?

Related: You Haven’t Learned Anything Until You’ve Changed Your Behavior

This is called gamblers’ fallacy and includes our amazing ability to put a whole lot of weight behind something that was completely random and should not even be considered when making investment decisions.

4. Confirmation Bias

Have you ever ignored a piece of information that went against the decision you wanted to make? Do you consider that information or do you ignore it?

If you ignore it, that is a great example of confirmation bias. All of us are perfectly able to ignore data and information that tells us we are making a bad decision while we look for any information that confirms what we want to do!

5. Herd Behavior

This one should be fairly self-explanatory. DO NOT FOLLOW THE HERD! Everyone else doing something, buying somewhere, hiring a coach, buying a piece of collateral or program… these are not reasons for you to do the same.

Related: The Number One Irrational Behavior of Real Estate Investors

Do not be influenced by others, but when seeking advice from other investors, be aware that what works for one does not always work for another. Make your decisions based on you!

Hopefully you enjoyed the 12 minute video with the quick explanation of the 5 irrational behaviors that real estate investors exhibit, and I would love to converse below on your thoughts!

What irrational behaviors do you find yourself exhibiting? Do you share any of mine?

Let’s talk — leave a comment!

In 2005, Chris Clothier (G+) began working with passive real estate investors and has since helped more than 1,100 investors purchase over 3,400 investment properties in Memphis, Dallas and Houston through the Memphis Invest family of companies.

    Jacob Elbe
    Replied almost 5 years ago
    Chris, good video and definitely behaviors for us all to be aware of! I think the herd mentality is a big one! It’s easy to hear success stories and tips from others and think “I just need to do that!”. In reality so much of what works in RE is market specific and even property specific. This is definitely one I have caught myself on. My example was spending a lot of time looking for investment properties in markets that “I’ve heard” are good markets. But without having the market knowledge or a network in that market, I wasn’t focusing on the right areas or property types to find good deals. So for me it made more sense to stick with what I knew and what I was comfortable with instead of trying to force into a market I really knew nothing about. Thanks again for the great info!
    Chris Clothier
    Replied almost 5 years ago
    Jacob — That was a great point you made about investing in other markets! Thank you for sharing your experience. I appreciate you taking the time to watch the video and leave your comments. Thanks – Chris
    Hattie Dizmond
    Replied almost 5 years ago
    Yeah…Investopedia did a great series on these issues.
    Hattie Dizmond
    Replied almost 5 years ago
    Yeah…Investopedia did a great series on these issues. Reply Report comment
    Rob Shepherd
    Replied over 4 years ago
    I think too many people DO follow the herd and don’t want to be the lone shark out there seeking the best deal but for those who do, they often are rewarded. Great post, thank you