QOTW: How to help a new investor stuck in “Analysis paralysis?

92 Replies

New year, new challenges is our focus for our Question of The Week!

We've all been there, excited about a new adventure, but scared to take the plunge. With the new year, lots of people are looking at starting their real estate journey, but they are trapped by "analysis paralysis". It makes sense. Not feeling like you know enough, imposter syndrome, or the potential financial risk all come into play. Let's help out our newbies or even those who are "leveling up"! How did you get over the analysis hurdle? Did you find out more that you wish you would have known? Did the move work out, or were you able to change your approach to make it successful? Let's show some encouragement that getting started can be scary, but worth the journey!

Great question @Alicia Marks ! I have two immediate thoughts:

1. Most new investors have an amazing opportunity to get into the real estate game by house-hacking.  The best part of house-hacking is that any deal is better than no deal.  If you're able to divide your housing costs at all, it's better than not doing it 100% of the time.  Even if you can't find your perfect house-hack, buy one ASAP and start building that equity and savings rate.

2. In my local market (UT), analysis tools like the "1% rule" are impossible to achieve.  Nevertheless, I continued to buy properties that didn't meet the standard criteria and found that all I had to do was invest from a position of strength (with good reserves) and sit on the properties for a year or two before they became incredible investments.  Properties I bought prior have up to $800/door more cashflow now than when I bought them.  They weren't money makers at first but have turned into the best financial decisions I've ever made.  

In other words, don't wait to buy real estate, buy real estate and wait!

Good luck to all!

Its scary getting started, or changing levels.

2 things that stand out to me when in analysis paralysis is, get feedback from a trusted source, and make offers.   

This past year the properties values jumped a lot, so new buyers had to be carful to buy within the rules. We he have helped several investors start their investment journey, some blow right past the fear of offering, and some get stuck for a long time. 

If you are feeling stuck, find a mentor (there are many on BP, time willing, I am happy to chat through projects no mater where you are buying). An experienced mentor can help build you up to your offer stage.  

Note: When you go to talk with a mentor, go in with specific questions, or with a completed analysis on what you are looking to buy; and be ready to answer due diligence questions. 

When them mentor says jump, trust and jump. Go offer -

The great thing about offering (as long as you set it up right) is you can back out during contingency.  Currently ('22), first investor offers rarely get accepted but you learn the offer process and get some momentum. When you offer, you commit, and commitment moves the needle. 

For me taking a new strategy of land development this past year was a mental hurdle, we went from SFH into land development. I experienced the feeling of unknown, and analysis paralysis all over again. What made the difference for me was saying yes to submitting an offer, and talking it over with a mentor. Once the offer was accepted the work began, but I didn't have the fear of the unknow anymore, I had the fire of taking action.

@Alicia Marks We were just going over this in my office on Friday. I offered to let someone in on a small part of one of my deals, or if he wants to at least follow the deal from start to finish so I can explain the reasoning for each step along the way. I think a big part of it is just not actually seeing it done. 

Another issue is the shiny object or "if you chase two rabbits you'll catch none saying" when people start looking at way too many options rather than just focusing on one deal. 

Either way, I would try to just educate and coach people as much as possible to get there courage up but it is very tough to get people over analysis paralysis sometimes 

I lean on my wife.  If I get bogged down on a transaction, she can usually tell and gives me a swift kick in the rear end.  

Someone else mentioned a mentor - that is of course a great way to go. Some spouses are not in the REI game with you, so may not be there to give you that swift kick in the rear end. At least not for said reasons above...Ideally, the whole family is involved.

@Alicia Marks this is a great question and the number one challenge faced by new investors. "Analysis paralysis" is an emotional response (fear) to information. It is your mind looking for a logical reason to say no, so your mind keeps looking for "more information". In reality you are looking for negative information to justify your inaction. Analysis paralysis becomes a never ending loop, because you believe with just "a little more education or information" that you can get out of it. The only way out is confronting the underlying fear. Fear in this context can be broken down into three categories:

1. Fear of the unknown. Humans are programs to be cautious of anything new and unfamiliar. This is the "flight" part of our fight or flight instinct. Unfortunately not all new things are dangerous to us, so it can prevent people from doing good things. One way to deal with this fear is remembering those times you took a leap of faith and it turned out fine. Learning to ride a bike, how many times did you fall down and get back up? Another way to deal with this fear is imagining the worst case situation and accepting it. Once you accept the worst case scenario, anything better than that is success. If you buy a rental property and it doesn't work out, the worst case situation is you sell the property. Worst-worst case situation, you may sell it for a small loss. Other than loosing a little money, it basically puts you right back where you are today. So your "worst case" situation is being basically where you are today.

2. Fear of failure. This has its roots in self doubt and pride. The ironic part of this is that the most successful people have a long list of failures. Many successful business owners had several failed businesses. They will even tell you without failure, they would not have learned how to be successful. They key is not being afraid of failure, but be afraid of inaction. The famous hockey player, Wayne Gretsky, once said "You miss a 100% of the shots you don't take." This is the dirty little secret nobody talks about, failure is part of success. At a commencement speech, Apple founder Steve Jobs once said, "it is ok to fail forward" as he recounted his many failures that lead to his success. Thomas Edison created the incandescent light bulb and it took 10,000 tries. Half way through the process he was quoted as saying, "I have not failed 5000 times, rather I have successfully discovered 5000 ways that do not work." 

3. Fear of success. This is caused limiting beliefs around what it means to be successful. Often this stems from unhealthy beliefs around money or wealth. People are programmed from a young age to believe "money is evil" and "wealthy people are greedy". If you hold these beliefs, you will have trouble ever gaining wealth in your life, because you will self-sabotage at every turn. That is because humans can't take actions that are contradictory to our core beliefs. If you believe wealthy people are greedy, there is no way you will let yourself become wealthy, because that means YOU are greedy. The truth is that most wealthy people are actually very generous. That is because when you have excess money, you can easily afford be generous. It is also because once you have excess in your life, you look for greater meaning and a legacy. You leave bigger tips, buy dinner for fiends, donate to charity or even start a charitable foundation to amplify your giving. Once you realize how much GOOD you can do with money, it can change your negative beliefs. Another fear of success is that you will alienate or lose friends and family. It is true that as you gain success, you may encounter resistance from friends and family. Your success makes them face the reality that they are falling behind you. Their response is often to run you down and hold you back. It is the "win by forcing others to lose" mentality and it is ugly. It causes people to limit their success to match their social circle. There is a saying "you are the average of the five people you spend the most time with". The hard solution here is surround yourself with only positive influences. If you want to wealthy, surround yourself with successful people. This is where mastermind groups can be beneficial.

There are two things that every successful person has in common:

1. They expect a positive outcome. They often even visualize it or act as if it has already happened.

2. They take calculated risks. Note there is a difference between taking unnecessary risks and taking calculated risks. A calculated risk has two factors. High probability of a positive outcome and tolerable consequences of a negative outcome. 

Rental properties are a very forgiving business, which is why it is an excellent choice for the average person. Real estate generally increases in value and housing is a fundamental human need. This demand drives up value. Even when people "fail" and sell off rental properties, they often walk away selling the asset for more than they paid. Most people exit the business because they are sick of dealing with tenants and repairs, not because the investment is losing money.

Boiling this down even further: The difference between successful people and those who never get started is taking action. Set a deadline today and buy a rental property. Don't make a plan to buy a hundred, just buy one. Then buy another and another. Keep it simple and keep moving forward. Even if you fail, just make sure to fail forward (into a new deal).

I don't think I had analysis paralysis but I would say the one single thing that got me to the finish line on my first deal was my rock star agent @Nick Harris . I know if it had not been for him I would have backed out and so far (fingers crossed) I'm really glad I didn't. As soon as I'm ready to take down my next deal I know exactly where to go.

I see it as a safety valve for ones stress tolerance. It could be telling you that you aren't satisfied with the results of your analysis, to which you should take heed, as a bad deal will reek much more havoc in ones life, then a missed deal. 

I promote starting at the local level, where you can perform an accurate CMA, recognize social/economic drivers, evaluate rental market, meet local players, ....

Purchases in themselves are not the measure. Identifying opportunity comes first. What you do with that is secondary. Nothing, is self explanatory. Purchasing comes with a whole bunch of commitment and activity. Selling it to another investor can be very lucrative considering what you've invested. Being the one that discovers opportunity, puts you first in line to capture the highest returns. Realizing that, and being able to execute, is the true measure.

The simplest defense against 'Analysis paralysis' is market knowledge. 

  

@Joe Splitrock nailed it.

My take on helping convince folks to pull the trigger is, there is no way to no if the market is going to go up or down.  It depends on politicians, Pandemics, weather, etc. no model can predict it.  But I have yet to meet anyone that bought a good property, in a good area, that cash flowed, that did all their due diligence who wishes they wouldn't have bought it 10 years later.  And I have yet to meet anyone that was in a position to buy real estate 10 years ago who got scarred and believes they are better off now than they would be if they would have bought.

Cheesy saying that is 100% true, "don't wait to buy real estate buy real estate and wait."  Must be the realtor in me!  LOL

Quote from @Eric Bilderback:

@Joe Splitrock nailed it.

My take on helping convince folks to pull the trigger is, there is no way to no if the market is going to go up or down.  It depends on politicians, Pandemics, weather, etc. no model can predict it.  But I have yet to meet anyone that bought a good property, in a good area, that cash flowed, that did all their due diligence who wishes they wouldn't have bought it 10 years later.  And I have yet to meet anyone that was in a position to buy real estate 10 years ago who got scarred and believes they are better off now than they would be if they would have bought.

Cheesy saying that is 100% true, "don't wait to buy real estate buy real estate and wait."  Must be the realtor in me!  LOL


 What you refer to about no way to time the market is the same principal used in stock investing called dollar cost averaging. You buy in up markets and down markets and over time the average works out. 

I told my realtor just last week, "had I known how values would increase, I would have bought a bunch more of those houses". It would be funny if I wasn't so sad about it, haha.

Hi everyone, I live in Chicago and looking to purchase a fix and flip in the Chicago area. I've been looking around for funding but indecisive on which hard money company to go with. Should I be locking down funding first? I have my eye on several properties but they don't last long.  Thank you. Marcus 

I would say to almost "Zoom" out and take a look at the whole. I tend to learn best by visualizing or picturing a sort of flow chart. 

Real Estate is a system. Systems have processes. Processes are a series of actions. Actions have an aim.

Do you have an aim? Then shoot and fire - "swiftly and decisively" BUT with humility. Adjust as you learn and know that you'll never stop learning. 

As a newbie myself, what's been preventing "analysis paralysis" for me is setting small goals every day. Today, it was talking to @Michael Swan about his multifamily story. Our convo gave me great ideas and insight on my investing strategy! I also saved @Steven Silbert 's REI meetup in my calendar & plan to attend to network. Every day, I do something toward my REI goal which brings me closer to the financial freedom I want. How do you eat an elephant? One bite at a time. How do I tackle my REI goals? One conversation, one Bigger Pockets connection, one meet up, one webinar, one podcast episode at a time until those smaller goals become larger ones. #worththejourney

@Alicia Marks

I am surely no pro and don’t have a gazillion doors or 20 years experience, but I don’t get the whole analysis paralysis thing. With a pen and paper and 15 mins I can tell if the numbers work or not and/or I can afford it.

I share my deal criteria with my network (banker, partner, property manager, realtor, friends, family...)

When I find deals I share them with my network.  I create an environment that reminds me what I am looking for and and why I am doing real estate. I premake my decision on what deal I will commit to.  This helps me to put down earnest money. Once I put down earnest money this helps me to move forward in a decision. 

Write down your criteria to put up earnest money.  You will be encouraged to move forward when the right deal presents itself.

Thank you

@K. Tucker

It was my pleasure talking to you on the phone.  I really like teaching and I am a lifelong learner!!

Let’s kill it in 2022!! Take no prisoners!!

Swanny

BP Podcast 238 Guest!!

If you don't mind, can you clarify, or specify exactly what analysis paralysis is?

My guess is that it means a person is doing the math, but is not positive that his math is correct and this uncertainty stops him from ever pulling the trigger kind of like a half-blind man shooting at a hostage taker in a tense situation.

I'm still working on that elusive first deal, but in my situation three things moved me off of analysis paralysis. 


The first thing was working towards saving/earning the down payment.  I set out 10 months ago to repair my credit so I could refinance my home and originally intended to simply lower my mortgage payment.  Then 6 months ago I came across BP and started learning what I could.  A month in I told myself that if I could somehow get a down payment together then I'd start moving.  Working with my local lender, I learned a lot about what I needed to do to improve my credit score as well as what I needed to do to get better financing.  Once I got my credit history fixed, it was easy to refinance and as a bonus I was able to get more out than I expected.  So now that I have that elusive down payment in hand, I had no choice but to start moving forward.

The second thing was getting my wife involved.  She's much more conservative than I am and when I initially started talking to her about real estate investing, she was almost instantly opposed to the idea.  Too much risk.  Too much uncertainty.  Too many moving parts.  We live so far away.  When I shot out my initial post a few days ago, I had a few nice folks reach out to me.  I asked my wife to speak to a few of them so she could learn on her own whether this is something she'd be willing to join me in this endeavor.  It surprised me when she reached out to a few of the contacts I had received.  I now come home and she can't wait to tell me about who she's talked to and what she's learned.  I'm kind of jealous because I didn't get as excited about this journey when I first started toying with the idea as she is now.  But it is infectious and now with the both of us on the same page we're both pushing each other to move forward.

And finally, the biggest push came right here from this community.  It took me almost 6 months before I finally made a post, but once I did the response was wonderful.  I've spent the past few days glued to this site reading what I could, making new connections and just putting myself out there.  And as I mentioned above, someone here kicked my wife into high gear so while I might have gotten the car started, she's the one that's flooring it!  Thank you BP community!  I can't wait until I'm posting about my first deal!

My analysis paralysis has been nailing down the specific market. I keep hopping from one market to another finding reasons that one is not good- even though I know you can find the right deal in most markets. Part of the problem is how much I enjoy the learning and research side :-) . But going to visit a bunch of places today in one of my shortlisted markets and so ready to make on offer on something and get started already.

I work with a lot of investors that have XLS tables that have XLS table embedded and pivots inside the 2nd sheet.  Impressive coding.  

This is a much simpler business than new people think it is.  No one loses money in Real estate.  How much did your parents pay for the house you grew up in?  How much is it worth now?  Inflation and price appreciation will fix all.  We are in hyper growth mode, amazing if you own.  A little harder if you are looking to get started.  With that said, I would assume  no one is buying a burnt out house for $1m in the worst part of town.  Prices today are higher than they were in 2008 during the boom.  I only raise rents when units turn over.  I have been able to raise rents to levels that I thought were just silly.  Some of my singles or doubles are now home-runs!  

In the words of Jay Leno, "You did not pay too much, you bought too soon."

Price appreciation in RE is expected to be in the 20% range this year.  I am generally not a fan of counting price appreciation, but given the rate it is noteworthy.

3 questions to ask…

1.  Is the area acceptable? Not would you live there?  There are different expectations based on if it is an A, B or C neighborhood.

2.  Will you have more money in your pocket at the end of the year than at the start?  I use only real numbers, tax insurance mortgage interest.  Until you buy the property you are only guessing by taking; reserves, vacancy, repair, capital expense, new grass fund, cash reserves, blue sky fund, I want my spouse to sleep at night fund.  If the money is in your pocket, it is not an expense.  I pay bills when they come in, not on a theoretical basis (cash accounting).  I generally renovate all my properties, new roof, plumbing, electric. A/C.  These are the big ticket items.  I have very little maintenance as a result.  In Jacksonville my properties rent immediately, property turns are my only vacancy. 

3.  Do you have a better alternative for your money, not just RE? What is the cost of your money sitting on the sidelines?  If you think the prices and rent are going to fall in the near term, keep you money safe for when that day comes.  If you think you money is losing value (inflation) for every day it is sitting in cash at Bank of America, then act. 

Great is the enemy of Good.  If you are chasing unicorns in Central park, you are never going to make a decision.  Base hits win ball games.  I know a lot of people who have made a lot of money taking base hits and waiting for the market to make them a hero. 

It is easy to fall into the trap of listing to a podcast or reading about someone who bought a property years ago and think you can reproduce exactly what they got.      

"NO. Try not, DO. Or do not. There is no Try"

                                                                                                                   -  Master Yoda