“My emotions got the best of me” is something I remember saying a handful of times while shaking my head in frustration and vowing that this would never happen again. As seasoned real estate investors, we can typically grasp if a local real estate opportunity is a “good deal.” However during, the course of your due diligence and pre-closing process, you, the investor, can possibly sabotage yourself and your investing business without the slightest idea that you’re doing so.
Below is a short list of verbal and situational clues to be aware of while investing logically. Much like the old saying of a frog on a slowly heated pan, little changes over time can add up to costly investing mistakes without you knowing it.
Disclaimer: The below sentences and situations are a guideline. You are the one who truly knows your inner beliefs and emotions. Keep your excitement in check and typically invest with the logical side of your brain.
6 Tips to Help Keep Your Emotions in Check When Investing in Real Estate
1. Monitor your inner thoughts.
“I need this deal,” “I’m going to get this deal,” or “This one is mine” are all-powerful statements that emotionally tie your word and promise to purchasing this property. If you fail and do not purchase the home, you are by definition a liar, and nobody wants to be a liar.
Even after a Purchase and Sale Agreement is made, you may legally and ethically back out of an increasingly risky deal. Instead of mentally committing to purchasing a home before you buy it, aim to identify the reasons you should and should not purchase this deal. If the cons outweigh the pros, then consider passing on this opportunity.
2. Previous effort does not make a valid deal.
I recently spent two hours driving to a mobile home for sale and another hour chatting with the seller. In addition, I had also invested 45 minutes of due diligence before I started driving to the appointment. With all this effort and time already invested, I was confident the mobile home would be a solid deal, sight-unseen. As I was pumping gas along the ride to the destination, I remember saying out loud to myself, “I better purchase this home with all the driving I am doing.” This is the complete wrong mentality to have.
Be aware that you will invest time and energy into almost every deal you review and consider. This invested time/energy does not equate to lost hours or money if you pass on a skinny or risky deal. Passing on a skinny or risky deal is usually correct; be proud of yourself for recognizing a poor deal and saving money.
3. Your real estate investing business should not be exciting.
Excited real estate investors are typically excited because of a recent deal closing, which by all means is a joyous and wonderful occasion in an investor’s life. However, with consistent marketing, regular daily offers, and dependable incoming-leads, a profitable real estate business should be more repetitive and predictable than exciting. Example: For every 2,500 letters I mail to sellers, one deal is closed.
4. Don’t buy that you must act now.
Whether it is a motivated seller, aggressive real estate agent, or late-night guru, the concept of “scarcity” is at work here. Human beings typically have a fear of missing out (FOMO). Be aware if you ever hear that you need to make a decision in the next 60 minutes or it is too late. Sometimes this pressure is genuine and real; great deals do not last long. However, as a real estate investor, we are usually the ones in the driver’s seats and in the positions of power. Even in very strong seller markets, investors aim to find motivated sellers in need of help and a quick sale without hassles.
5. Beware of “just one more thing…”
Newer investors beware. The old story of an alive frog being cooked on a pan due to a very slow rising temperature was mentioned earlier. As newer real estate investors, we typically make more and more concessions just to close our first few deals. Before going into any transaction, know what your time is worth and not worth. Prudent investors usually keep to their purchasing requirements from deal to deal to help make solid investments.
In conclusion, real estate investing is a serious, logical, and fun business. However, let us keep the excitement of real estate to the Home and Garden TV channel. When end-users are looking for a personal residence to buy, this is exciting. However, when you are investing in cash-flowing properties or commercial real estate businesses, things should be calculated and triple checked. Keep your eyes open and always be aiming to help more and more sellers. As the leads come in, you can continue practicing keeping your emotions in check.
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.