Understanding the Drivers Behind Analysis Paralysis

11 Replies

For those who have been learning about real estate investing for a while (6-12 months plus) and have not yet done a deal, or for those who have done a deal and then are hesitant to do another what are the reasons for your hesitancy or fear?  I really want to understand the true drivers of why people are afraid to move past the analysis of a deal, especially when they find a good one.  

I want to keep it pretty broad so that people don't feel they have to confine their answers.  

This is more just a curiosity for me, and I am hoping a learning experience for everyone. 

I do not fit the audience you are suggesting. Too much experience.

What I have observed over a very long time is new investors are worried about losses. They do not know what they do not know and the numbers are large. So, the potential loss can be large. 

They wrap fears into language which does not make that much sense when you pick it apart. 

One very common statement is 'What if I can not rent the property?"

I ask them if they believe they could rent it for $1.00 a month. They laugh and say, definitely. Then I re-phrase what they stated to be 'What if I could not rent it for enough to cover the monthly costs?'. In their mind they are worried about negative cash flow yet it gets articulated as a fear about not being able to rent at any level.

The point of the example is new people do not know what needs to be solved or focused on. They feel overwhelmed. As they should given the number of variables. Yet, people with less ability, experience and intelligence get started every day. I suggest they need to break it down and reduce the size or reduce the complexity to something they can handle. People buy homes to live in long before they master investing.

The uninformed mind always says no ... the inexperienced heart is always cautious ..

And ... in a very practical sense, I have found that "buyers" don't realize that "buying" real estate isn't like "buying" a car or a hamburger or a new coat. When a "buyer" buys most items, the money is gone and the item is consumed. "Buying" real estate is simply moving my money from one place into another place (i.e. my bank to a new property) The money isn't gone, it is sitting as equity in the newly purchased property. Provided the mind is informed (due diligence is critical) then inexperience can only be overcome by taking the step toward experience (that often means doing it with somebody who has experience). Remember being a little kid and crossing the street? - It always felt safer to do it with somebody else!

You first need to weed out deal quality. If you won't pull the trigger on well vetted, quality deals, you may have analysis paralysis.

Fact of the matter is the "deals" most newbies think they find aren't as good as they think, and if they have a part of the brain that has enough sense to stop them from acting on them, that isn't "analysis paralysis", that's just good judgement.

Thanks for the feedback everyone. Anyon actually in this position have a thought on why they can’t pull the trigger? Bit of focus group intention behind my post and question. 

For me when I started it was so much I didn’t understand about the business that I felt like my risk was very high and my likelihood to lose money was imminent . Reality was much different thankfully . At the time buying an investment property had me sweating heart racing and scared to death I’d screw it up ..now it’s about as exciting as getting a haircut . 

Dennis, I think that's extremely relevant, and I feel that is a large cause of it. It's the build up of fear coming from the unknown inside a person's head that causes them to freeze and not take any action at all.  I went through this as well until I got to the point where I was more driven to act by my frustration of not acting (and some other external changes that were going on) than I was driven by the fear of failing and losing money.  Its so true though, once you pull the trigger and act, whether it turns out perfect or not so perfect, it becomes so much easier going forward and you learn so much.  Diving in and taking imperfect action with just enough information is far better than taking perfect action with all of the information. 

Hi Team

I found when I started with property, I was looking at the wrong kinds of deals, I was trying to force the numbers to work, this resulted in a lot of frustration and fear that I was going to costly mistakes.

I had a hunch that my renovation costs were too high.

For months I tried different contractors and nothing changed, I kept getting the same answers.

I met a contractor who I clicked with about a month ago and we have put two development deals together already, his building cost is in line with what I need them to be.

Because of this, I offered him a percentage of my business, why, well if I don't he will probably become my competition, secondly I now control another link in my property supply chain.

Sometimes fear is because you know something is not right and you don't know how to fix it. This is when you need mentors and people you trust to guide you.

You must find a team you trust and who trust you.

You need to keep them close and look after them, in turn, they will look after you and together you can do great things.

I find that writing about my fears and analysing where that fear is coming from I can rationalise ways to overcome them.

@Dan Sarao I believe it is mainly not knowing the market well enough. If you really know your market, you know; how much rents are, what levels of finishes tenants or buyers want, What values really are after repairs etc.

You can think you know a lot about real estate because you know the strategies, You may also know the formulas to evaluate a deal. However if you do  not know the numbers to plug into a deal you won't be comfortable pulling the trigger.

The answer is looking at a lot of properties and evaluating the deals. Whenever possible visit other investors deals and ask them question about the numbers. 

Another factor is how you were raised . If your parents had a scarcity mindset and mostly consumers then the mental leap is far greater for the children when they become adults . The thinking pattern is Getting wealthy is just something your born into or luck into and it can’t simply be achieved by the average person born to an average family .To the consumer type all they ever saw was their money leaving them and not coming back in a monetary gain so they get this thinking that this applies to everything they purchase . In essence they think there is a limited set amount of money for them in life so it must be secured held and protected because if it’s spent then it’s likely gone forever and can’t be recouped 

Originally posted by @Dennis M. :

Another factor is how you were raised . If your parents had a scarcity mindset and mostly consumers then the mental leap is far greater for the children when they become adults . The thinking pattern is Getting wealthy is just something your born into or luck into and it can’t simply be achieved by the average person born to an average family .To the consumer type all they ever saw was their money leaving them and not coming back in a monetary gain so they get this thinking that this applies to everything they purchase . In essence they think there is a limited set amount of money for them in life so it must be secured held and protected because if it’s spent then it’s likely gone forever and can’t be recouped 

That is a wise, wise comment, Denny.

 

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here