{"id":132216,"date":"2020-11-20T15:00:55","date_gmt":"2020-11-20T22:00:55","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=132216"},"modified":"2023-04-04T00:36:07","modified_gmt":"2023-04-04T06:36:07","slug":"psychology-strategies-successful-investing","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/psychology-strategies-successful-investing","title":{"rendered":"Investment Psychology: The 3 Best Ways to Approach Wealth Creation"},"content":{"rendered":"<p><iframe loading=\"lazy\" frameborder=\"0\" height=\"200\" scrolling=\"no\" src=\"https:\/\/playlist.megaphone.fm\/?e=BIGPOC3505433712\" width=\"100%\"><\/iframe><\/p>\n<p>If you study the most successful real estate investors of the day, you might be struck by how wealthy they are. However, you should consider how they got to where they are. Because in most cases, they weren\u2019t born into wealth. Their success is the direct result of smart decision-making and the proper mindset. And not all of these decisions and mental frameworks have to do with financing, leverage, and money.<\/p>\n<p>If real estate investing were all about dollars and cents, success could be synthesized down to a simple formula. But alas, it\u2019s much more than a mathematical equation.<\/p>\n<p>In order to be successful in investing in income-producing properties, you must account for the softer, less tangible side of things. I\u2019m talking about the emotional and psychological components that fuel results.<\/p>\n<h2>How Does Psychology Play a Role in Real Estate Investing?<\/h2>\n<p>When a young and inexperienced real estate investor fails, <a href=\"https:\/\/www.biggerpockets.com\/blog\/7-deadly-sins-causing-real-estate-investors-fail\" target=\"_blank\">their lack of results<\/a> is often preceded by a shallow mental framework and wavering psychology. They become scared at the first sign of failure, trust in their gut at the expense of running numbers, and can\u2019t stomach the ups and downs of the market. All of these factors meld together to create a sense of instability, and ultimately the whole thing comes toppling down.<\/p>\n<p>If you want to be successful, you must begin by flipping the script. Yes, the financial side of things is important, but that\u2019s doable. (There are ample ways to invest, <a href=\"https:\/\/www.biggerpockets.com\/blog\/2014-10-18-invest-real-estate-no-money-down\" target=\"_blank\">even if you don\u2019t have any cash<\/a>.) The tricky part is embracing the mental and emotional side of things.<\/p>\n<p>Here are some practical yet important psychology tips and tricks that successful real estate investors use (and you can, too) to become successful.<\/p>\n<p><em><strong>Related:<\/strong> <a href=\"https:\/\/www.biggerpockets.com\/blog\/2013-02-12-psychology-making-offers\" target=\"_blank\">The Psychology of Making Offers<\/a><\/em><\/p>\n<h3>1. Learn to Accept Losses<\/h3>\n<p>Are you familiar with the term \u201closs aversion?\u201d<\/p>\n<p>In the simplest terms, it\u2019s a behavioral finance concept used to describe a person\u2019s tendency to prefer avoiding losses more than acquiring gains. In other words, losing something you already have hurts more than the positive feelings of gaining something you don\u2019t have.<\/p>\n<p>Psychologist Daniel Kahneman spent many years studying this, running multiple studies, and found that this concept applies to both small and significant sums of money. <a href=\"https:\/\/www.psychologytoday.com\/us\/blog\/science-choice\/201803\/what-is-loss-aversion\" target=\"_blank\" rel=\"noopener\">In one of his experiments<\/a>, people were more upset about losing $10 than they were happy about finding a $10 bill. He concluded that losses hurt roughly twice as much as gains make us feel good.<\/p>\n<p>Losses are never good, but you can\u2019t let them rule your real estate investing decisions. If you\u2019re constantly worried about the possibility of losing\u2014or if you let a past investment loss cloud your future decisionmaking\u2014you\u2019re never going to be successful.<\/p>\n<p>Quelling a heightened sense of loss aversion and using smart, objective metrics to take calculated risk is the approach successful investors take.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-117210\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/10\/banged-up-benji.jpg\" alt=\"Ben Franklin with sports a shiner (black eye) and a band-aid on the face of a US One Hundred Dollar Bill (C-Note) as an illustration of the weak dollar.\" width=\"702\" height=\"336\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/10\/banged-up-benji.jpg 702w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/10\/banged-up-benji-300x144.jpg 300w\" sizes=\"auto, (max-width: 702px) 100vw, 702px\" \/><\/p>\n<h3>2. Avoid the Gambler\u2019s Fallacy<\/h3>\n<p>The gambler\u2019s fallacy is another interesting concept. It\u2019s the belief that if an event has already happened, it\u2019s less likely to happen again after the event has already occurred (or vice-versa).<\/p>\n<p>In other words, if you flip a coin five times and it lands on heads each time, the gambler\u2019s fallacy says that the sixth flip is more likely to be tails. But in reality, the sixth flip doesn\u2019t care about the first five. There\u2019s still a 50-50 chance that it lands on heads. The coin has no memory.<\/p>\n<p>In real estate investing, it\u2019s easy to assume that because you failed on a previous investment, the odds are bound to be in your favor this time (or vice-versa). But by taking this approach, you could end up throwing good money at a bad deal.<\/p>\n<p>The best way to avoid the gambler\u2019s fallacy is to know what your goals are and use a sound set of principles to guide your decision-making. Keep a long-term mindset and trust that your commitment will be rewarded.<\/p>\n<p><em><strong>Related:<\/strong> <a href=\"https:\/\/www.biggerpockets.com\/blog\/best-real-estate-strategy-new-investors\" target=\"_blank\">The Single Best Strategy for New Investors<\/a><\/em><\/p>\n<h3>3. Never Follow the Crowd<\/h3>\n<p>It\u2019s easy to get so caught up in following what other investors are doing that you start trying to replicate everything they do. And while there\u2019s something to be said for using proven principles, be wary of making assumptions based on someone else\u2019s success in a different market.<\/p>\n<p>You have to analyze your own strengths and come face-to-face with your personal weaknesses. If you follow the crowd, you\u2019ll make decisions that are smart for someone else but unwise for you. After all, if we all made the same decisions, we\u2019d all be sharing the same marketplace.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-117687 size-main-slider\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/10\/fighter-plane-leaves-formation-702x336.jpg\" alt=\"Charting a different path business concept as an independent free thinker idea with air show jet airplanes in an organized formation with one individual plane setting a new course with 3D illustration elements.\" width=\"702\" height=\"336\" title=\"\"><\/p>\n<h2>Adding It All Up<\/h2>\n<p>Real estate isn\u2019t some formulaic endeavor that\u2019s predicated on having X dollars in order to get Y return. Unfortunately, it&#8217;s not as simple as feeding dollars into a machine and waiting for a bigger return.<\/p>\n<p>There are so many mental and emotional wheels turning behind the scenes. And if you want to be successful as an investor, you must learn how to shape your psychology so that it\u2019s conducive to sound decisionmaking, steadiness, and a long-term commitment to growth. If you do those things, results will eventually follow.<\/p>\n<p><a href=\"https:\/\/www.biggerpockets.com\/calc\" target=\"_blank\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-117195 size-full\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/10\/Signup_3.jpg\" alt=\"\" width=\"728\" height=\"90\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/10\/Signup_3.jpg 728w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/10\/Signup_3-300x37.jpg 300w\" sizes=\"auto, (max-width: 728px) 100vw, 728px\" \/><\/a><\/p>\n<p><em>What mentality do you use to successfully approach investing?<\/em><\/p>\n<p><strong>Tell us some of your tricks in the comments.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Successful investing is much more than a mathematical equation. Learn how to shape your psychology so that you can make good decisions.<\/p>\n","protected":false},"author":59534,"featured_media":118236,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[20,7119],"tags":[],"class_list":["post-132216","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-personal-development","category-biggerpockets-daily"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/132216","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/59534"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=132216"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/132216\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/118236"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=132216"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=132216"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=132216"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}