Personal Development

Why It’s OK to Fail in Real Estate (And How It Can Actually Make You Money)

Expertise: Personal Development
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Atychiphobia. The scientific term for the fear of failure. It’s slightly ironic that the word used to describe fear of failure is so difficult to pronounce that if you have it, you’d be afraid to try and and say it out loud — but that’s a different story.

While you may read about terms like this and assume they are reserved only for the severely afflicted, I’ve come to find that’s not always the case. Many of us, if not most of us, are suffering from this in one way or another. Not only can it be leading you to a less fulfilling social life, it can also be costing you money.

The phrase “analysis paralysis” gets thrown around a lot around here. I think we’ve come to take it for granted. It’s too easy to just say someone has analysis paralysis and so they aren’t doing deals. Why isn’t anyone talking about why people have this problem or what to do to fix it?

That’s what I’d like to talk about today.


How Many Opportunities Have You Missed Out on Because of Fear?

Have you ever noticed how some people just jump right into new things and figure them out without hesitation? I know I sure have. I hate those people. It’s just so easy for them. No fear, no doubt, no worry, they don’t tip a toe into the pool to check the temperature first. They just jump right in and immerse themselves. If they fail, they don’t really care. They just learn from the experience, adjust their game plan, and jump right into the next one.

These people tend to the be the ones who learn the most in the shortest period in time. Therefore, they are usually the most successful.

I won’t waste time going into all the examples of people like this who went on to do great things — you can do that research yourself. But trust me, there are a lot of them.

I am not one of those people.

I think way too long, worry about everything that could go wrong, and come up with lots of excuses for why it’s a bad idea. I don’t put nearly as much time into finding solutions for those problems. I just find a problem, use it as justification to write something off, and put the idea to death.

And I miss out on SO many great opportunities because of that.

I wanted to write for BiggerPockets for a really long time before I worked up the nerve to ask for it. Within two weeks, I had my first article posted and never looked back.

I wanted to be on the BiggerPockets Podcast for years but never had the guts to ask. When I finally did ask, they asked me to record four days after my first email.

I wanted to get my real estate agent's license for five years but could only think of reasons I would be terrible at it. When I finally decided to just do it, I passed the test on the first try, got signed up with Keller-Williams, and had my first two deals under contract pretty quickly.

The list goes on and on. Why did I wait so long to do something about the things I wanted? I was afraid to fail. Afraid to look like a fool. Afraid for others to see I had tried and wasn’t enough. I was literally so scared of failing at something that I ignored all the reasons why I should go for it and focused on the few, very unlikely scenarios that supported why I shouldn’t try. I was incredibly foolish.

And I bet I’m not the only one.


What the Gurus Won’t Tell You

Buying real estate in this country is about as easy as it gets. The government is practically smoothing out the road to make it as easy as possible. We have government sponsored entities (like Fannie Mae and Freddy Mac) that buy up loans banks to take the risk off of banks and make it easier for them to lend money. We have 30-year mortgages to spread out the monthly cost of ownership over a stupid-long period of time. We have mortgage interest rate deductions, tax depreciation benefits, first time home buyers programs, 1031 like-kind exchange capital gains exceptions, HARP programs, and a FED that is sacrificing future economic health and the interest retirees make on their nest eggs all just to keep interest rates artificially low so homes are more affordable and easier to obtain.

It’s crazy! Our government is bending over backwards to encourage people to buy homes. They are adjusting the rules for short sales and taking losses on debt specifically for home owners. Every single sign is pointing to the fact that Uncle Sam wants you to own a home. Yet in spite of this, the majority of people on BiggerPockets, a freaking real estate website, are STILL afraid to pull the trigger and get in the game!

Now, why is it that no one is talking about this? It baffles me. With everything encouraging you to start investing in real estate, how powerful of a force would it take to hold you back and keep you on the sidelines?

It’s the fear of failure. And it’s powerful.

Now, I’m going to come out and say something controversial right now. It’s going to upset a lot of the “gurus.” The people who play it safe. I wouldn’t be surprised if this post catches some heat, but I’m going to say it anyway.

It is totally OK to lose money in real estate.

Now, I say this as someone who has never lost money, so I’ll admit, it may be easier for me to say this than others. If you were one of the people who lost your shirt during the last recession, you’re probably seething while you read this. I am genuinely sorry you went through that. That was an absolute crazy roller coaster fueled by many different greedy people, and the ignorant got caught underneath it when the tsunami finally crashed. It understandably left a bad taste in a lot of people’s mouth, and I’m sure a root of bitterness still exists to this day in the hearts of those who lost big.

Related: How to (Gracefully) Handle Epic Failure as a Real Estate Investor

But we need to understand the culture that created.

It was an awakening. A sobering reality. It caused a lot of people to wake up from a state of wealth intoxication and say, “Huh?” The painful lessons are always the ones we remember most. It created an atmosphere of caution, to say the least — and mistrust, to say the most.

And it caused a lot of people to reach out and actually start trying to learn how this whole real estate thing works so it wouldn’t happen to them again.

Now, you’d have to ask Josh, but my opinion is that this culture created the perfect environment for a website like BiggerPockets to flourish. I mean, imagine if a wave of infectious diseases had spread over the entire United States and everyone was getting sick. The symptoms were present everywhere. Do you think might see a rise in site traffic?

BiggerPockets became the place to go to find a solution to the problem. And thank God it was here, as people like me were able to learn a whole lot and helped gain the confidence to start taking risks at a time when everyone else was saying safe was the way to play it.

Real estate I invested in at this time made me, a blue collar worker, a millionaire. I'd say it was a good thing I didn't play it "safe." Instead, I played it smart. When everyone else was judging how well an investment class did by the recent chain of events (the crash of real estate prices), I was thinking about how well my position would be 30 years later when my loan was paid off with my tenants' money. It enabled me to see opportunity where everyone else saw a falling knife.

Now I want to encourage all of you to do the same thing.


Why It’s OK to Fail

We need to stop thinking about success in real estate purely as how much money you make and start thinking about it in terms of how much information you learned and how much that information is worth.

Imagine if you jump in with both feet. You run some numbers, see that they look good, and buy your first house to flip. Now, let’s say for the sake of this example that everything goes wrong. You misjudge your ARV. You go way over budget on the rehab. You get fined for work without a permit. You lose your shirt on the deal, and when all is said and done, you’re out $25k.

Now, this is a worst case scenario. We are all terrified of this. Does it suck to lose $25k? Yes. But that’s just money. We can make that back if we need to. What’s the real fear here?

You failed.

All your friends you told about your flip will ask how it went. You’ll have to hang your head in shame as the idiot who lost $25k dabbling in something they had no business in. All the people looking up to you as the brave one who jumped in will lose respect for you as they hear about what a disaster it turned out to be. Tail between your legs, you will slink back to your cave to lick your wounds and hide from society until enough time has passed that people forget all about your entrepreneurial aspirations.

Total failure, right?

Well, if this is the only step you ever take, then yeah. You bombed — and bombed big time.

But what if you were able to shake it off, unfazed, focus on what you learned, adjust your game plan, and strike back with a vengeance on the next one? What if your whole goal from the very onset wasn’t to make money, but to learn?

What if the information about real estate, construction, markets, and yourself were all more valuable to you than the bottom line?

This is a scary thought.

Related: Most Top Investors Fail Before They Succeed: Here’s Why You Should, Too

Brandon Turner has told the story many times about how his first flip went terribly. He totally over upgraded, bought a weird house, tried to price it too high to make up for his mistakes, pretty much everything you shouldn’t do. He “failed.”

On my BiggerPockets Podcast appearance (episode #169), I tell the story of my first rental. How I failed, what I did wrong, how I got ripped off to the tune of $7,000, and how I nearly quit altogether. I didn’t just fail. When it comes to managing my own property and choosing a tenant, I failed epically.

So many other people can tell the same story. On BP Podcast episode #171, Ryland (a megastar today) lost $150,000 on his first flip! That is a majestic nosedive into the pool of failure! Ryland today is an independently wealthy investor.

Now do you think any of us regret losing money on our first deals?

NO. We learned what not to do. We learned what we didn’t know. We learned how to do it better. We LEARNED. And we went out and did progressively better on each deal until we got pretty good at the whole thing.

Imagine if you took all the pressure off yourself of succeeding at your first at-bat. Imagine if you just said, “I want to do this and see how it goes — that’s all I’m looking for.” If you made money, awesome. If you didn’t, you will make it up on the next time.

You could lose $25k on your first deal, learn what you did wrong, get better counsel next time, then make $25k on your next two deals. You are now up $25k and a much better investor than you were when you began. You didn’t “lose” that initial $25k. That was the price you paid to learn what you didn’t know. And you took that knowledge and applied it to your future efforts. That knowledge is now making you a lot of money. It’s contributing to your “success.”

Now, the reality is, it’s not likely that everything is going to go wrong. If you’re reading this, you already know about BiggerPockets. That alone gives you an advantage that Brandon, Ryland, and I didn’t have. You are ahead of the game. Use that! You aren’t likely to lose money if you vet your deal through the people on this site who are experienced.


Let’s Redefine Failure

My point is, if you redefine “failure,” it takes a lot of pressure off of you. Pressure that you might not even have been aware existed in the first place. If you make seeking knowledge your ultimate goal and creating win-win relationships your secondary goal, the money will invariably find you.

So many people on here have the potential to be great investors and are likely future millionaires. That potential is never going to become anything more if you don’t start learning at a faster pace and putting yourself in a situation to do so.

One of my favorite movies is Kingdom of Heaven. In it, a blacksmith named Balian is being sworn in as a knight by his father, played by actor Liam Neeson. Liam’s character recites the following words:

“Be without fear in the face of your enemies.

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Be brave and upright that God may love thee.

Speak the truth always, even if it leads to your death.

Safeguard the helpless and do no wrong — that is your oath.”

At the end of the oath, he smack Balian across the face, hard enough to draw blood. He then states:

“And that is so you remember it.”

I love this line. It signifies that the painful lessons are those we remember best. In order to help Balian remember the oath, his own father smacks him across the face.

It works the same way in real estate. The lessons where we learn the most are the ones that hurt the worst. If losing $25k is your smack to the face that helps you learn how to do better next time, take it with pride and rise up a knight, ready to conquer on your next deal.

It is OK to lose money — if it’s for a greater purpose. It is never OK to not learn. Feed your brain with as much info as you can, surround yourself with as many wise counselors as you can, consider every angle you can think of, then step out there and get in the fight.

You may get knocked down. You may lose a battle. But the war is what counts. And the war isn’t lost until you choose to quit and wave the white flag.

Only you decide when that will be, which means you are in complete control of making sure you never fail, never lose the war, and never miss out on finding your potential.

Related: How to Use a Fear of Failure to Empower Action (in 4 Simple Steps!)

If you lost money during the last recession, don’t let that be the final word on your investing career. Take what you learned, apply the lessons you paid for with pain, and get back in the fight, better than you were before.

If you have been sitting on the sidelines afraid to fail, don’t let that be your legacy. Find something you can handle, give it your best, and learn everything you can during the process.

If you’ve had a streak of good luck and have made good money on every deal but don’t really understand how you are doing it, don’t be fooled into thinking you’re skilled. Take some time to start paying attention to how real estate works and how you’ve been successful. Understanding how you’ve made the money is more important than just making it.

If you find yourself not taking steps to accomplish what you want, ask yourself what you’re really afraid of. Odds are it’s not worth the weight you’ve been giving it.

Be more afraid to miss opportunity than to fail trying.

Investors: Is a fear of failure holding you back? If you’ve already failed, how did you pick yourself back up?

Let’s talk in the comments section below.

David Greene is a former police officer with over nine years of experience investing in real estate that includes single family, multifamily, and house flipping. David has bought, rehabbed, and managed over 35 single family rental properties, owns shares in three large apartment complexes, and flips houses. He also owns notes and shares in note funds. A nationally recognized authority on real estate, David has been featured on CNN, Forbes, and HGTV. Now the co-host of the BiggerPockets Real Estate Podcast, David has a passion for teaching and helping others grow wealth through real estate. In 2016, David started the "David Greene Team" and became the CEO of the top producing Keller Williams East County team as well as the top producing real estate agent. The author of Long Distance Real Estate Investing and Buy, Rehab, Rent, Refinance, Repeat, David has won several awards including second place for real estate book of the year awarded by the National Association of Real Estate Editors (Long Distance Real Estate Investing).

    Tom Keith Investor from Longview, Texas
    Replied over 3 years ago
    Wow! Thank You David, i hate to say it but I have learned the hard way, I have lost money in my first two deals, I am not giving up so I Will Not Fail. I learned throughout the process and then learned when trying to sell and I will keep taking notes and reading books and asking questions and asking for help. And yes, I have had all the nay Sayers say look what you did, you need to get out. Sorry, I am only getting better.
    David Greene
    Replied over 3 years ago
    It’s easier for the naysayers to criticize from their seats than to enter the arena and risk losing. Sounds like you’re on the right path. Looking forward to your future success.
    Tom Keith Investor from Longview, Texas
    Replied over 3 years ago
    PS. kingdom of Heaven is one of my favorite movies for just that reason. Thank You
    Paul Winka
    Replied over 3 years ago
    Nice article, David. I got bludgeoned across the head with a caveman club with my first deal. I paid too much for a 4-plex on a druggy block because I didn’t do due diligence before buying, then let my well meaning but inexperienced stepdad “manage” it for me for two painful years, then happily sold it for a $25K loss. Did I ever learn a thing or two from that. BP didn’t exist at the time. Despite all the educational sources out there, I believe there are some lessons that can only be learned the hard way, even when those with paralysis analysis finally come off the sidelines. Mistakes are part of the “dead reckoning” to chart a better and better course as we gather lessons learned and network with others in REI.
    David Greene
    Replied over 3 years ago
    Bet you never make any of those mistakes again though! Pain sure helps us remember doesn’t it?
    Chris Harmer from Mc Kinney, Texas
    Replied over 3 years ago
    Sage words! Despite some horrendous mistakes typical for an overconfident beginner, I’ve found it darn near impossible to lose money in the current ridiculous bull market- but I have lost incredible amounts of time rehabbing houses I could have just bought already fixed up for the same end-of-the-day price. With that said, I have learned A TON and am finally leaving less and less (or sometimes none) of my own money in the buy-rehab-refinance deals, plus making a bit of cash flow even on relatively short term loans. It’s getting much tougher now since I’m over my 6-house Fannie Mae cash-out refi limit, but it’s still rollin’ along. 🙂 Thanks for the encouragement!
    Russ McNeill from Arvada, Colorado
    Replied over 3 years ago
    Great perspective You only fail if you stop trying. To your point, If your only cost of failure is money, you’ve just paid your tuition.
    Luke Piper from West Valley City, Utah
    Replied over 3 years ago
    I don’t have a fist fail yet, because I don’t have a first investment yet. But I do want to to tell you how greatful I am for this amazing post. You hit it square. Fear is my biggest enemy. I’ve invested in two personal homes so far and done well in both but not well enough for investments. After spending some serious time reading BP books, podcasts, and other resources I’m feeling more courageous! David thank you for breaking out Fear, calling it what it is and providing me solutions. I love the concept of failures just being the cost of an education. There’s to much to be missing out on to let fear stop me from taking action. Thank you again.
    David Greene
    Replied over 3 years ago
    Glad to hear it Luke! Not every shot needs to be a homerun. Hit enough singles and you’ll win the game. There is even a place for taking a walk, getting hit by a pitch, or just having a great at bat to figure out the pitcher that will lead to more success later. Don’t get intimidated by all the home runs talked about on sites like this. Just make sure it’s a positive buy!
    Replied over 3 years ago
    Hell David, Your article was very motivational – packed with wisdom and good examples. Thank you for helping me remember to take charge of my destiny: not to let fear control my life.
    David Greene
    Replied over 3 years ago
    glad to hear it Nancy!
    David Greene
    Replied over 3 years ago
    glad to hear it Nancy!
    Rod Casavant Investor from Hilton Head Island, South Carolina
    Replied over 3 years ago
    Thanks David — excellent description of the RE version of Maxwell’s ‘Failing Forward’!
    Moniika Gurg
    Replied over 3 years ago
    Hello David, Great encouraging post!! Thanks for sharing it here.
    Jiri Vetyska Investor from Normandy Park, Washington
    Replied over 3 years ago
    It’s absolutely true. In fact, it might be better to fail the first time, or you’ll think it’s way too easy and make some very serious mistakes next time. You may loose a few buck on the first deal, but what you gain is worth millions – experience, contacts, knowledge of the process and mainly you’ll go through the process once and you won’t have the fear to get into the next deal. You never know what’s gonna happen, but you can effect the outcome by being involved. When I got my hands dirty on my first flip back in 2001, I had practically no idea what I was doing, everything was slightly over budget and I had to do a lot of work myself (and pay friends to help). And then it was gonna work out fine in the end, and bang, 9/11 happened and nobody was buying houses. Market was very soft and I had hard time getting buyers in the door, so I had to take a short term loan to pay contractors and rent the place while it was sitting on the market to help pay the mortgage and everything. It’s experiences like this that give you a better lesson than any ‘guru’ salesmen ever can.
    Andrew Syrios Residential Real Estate Investor from Kansas City, Missouri
    Replied over 3 years ago
    Fear of failure is an absolute killer. On the buy and hold side, my dad likes to say that appreciation can wipe out a lot of mistakes. Over the long term, you’ll usually be alright, even if the deal wasn’t the greatest. On the flip side, one bad deal still usually doesn’t kill you (but you do need some reserves going in if you’re going to flip IMO).
    Kevin Fox
    Replied over 3 years ago
    Great points, David. Despite what many think, fear is perhaps the most dangerous emotion in REI; not confidence.
    Gianni Laverde Investor from Corona, NY
    Replied over 3 years ago
    Great article David. The only failure that exist is not to try!
    Alina Trukhina
    Replied over 3 years ago
    David, What a great article! Thank you!
    JP Hill Realtor from Holly Ridge, NC
    Replied over 3 years ago
    Thanks for the well thought out article.
    Narelle Myke Investor/Residential Developer from Newark, NJ
    Replied over 3 years ago
    I am currently planning my very first ground up construction project and will be submitting all permit paperwork this week. In order to get to this point I had to release some of my apprehension and recognize that I am getting the opportunity to do what I’ve wanted to do and learn a TON in the process! My life is about to get very interesting with this project and I’m so here for it! Dave, this article truly resonated with me – thank you.
    Stephen Hundley Realtor from Lafayette, LA
    Replied about 3 years ago
    Amazing article David! Keep up the great work!
    Donnie M. Real Estate Agent from Phenix City, AL
    Replied about 2 years ago
    Thank you for the reminder on how fear of failure can hinder us from action. Your article reminds me of “The Obstacle is the Way” in that we can choose how we respond to difficulties in our lives whether it be investing, relationships, or whatever life brings us. I remember a saying I learned as a teenager when competing to always remember that LOSS = LEARN. Learn from our losses and improve upon our weaknesses/mistakes. We will do much better and remember that loss doesn’t equal quit.