When the decision is made to start looking for that first investment property it can be exciting and frightening. Both excitement and fear are good teachers if we do a little analysis to discover how they affect decisions. When you arrive at the level of investing it‚s wise to understand emotions. I could give the simplistic advice that when investing you should keep emotions out of it, but that would be facile advice, and unrealistic, because, after all, we are human (most of us) and to be human is to have emotions.
Excitement is a natural part of the process; it can create pleasure in the act of buying and starting a new venture with the possibility of reward; however, can also negatively affect focus if it turns into impulsiveness and over-eagerness. I’ve seen first time investors fueled with excitement start a scatter-shot approach of looking over a huge area at diverse possibilities, then lose focus and get overwhelmed with all the possibilities. When they wound up asking me for advice, I’ve had to counsel them to focus because I saw them quickly approaching that point a person gets to when they make an impulsive decision just to relieve the tension built up by excitement and confusion.
I think its wise for first time investors to start out in a limited area they are familiar with and look for properties they will be comfortable with, rather than overload themselves with uncertainty and myriad choices. Perhaps a quadplex (just an example to make a point) close to where the investor lives, where you know the trends and players, would be the best choice. Starting small, limited and focused allows the investor to learn more efficiently. The old admonition to not bite off more than you can chew is good advice. It might be more important the first time to learn the ins and outs, getting familiar with preparation, contracts, due diligence, pricing and zoning, rather than try to snag the huge deal that’s going to make a fortune.
Then there is the frightening part, when you wake up at 2am in the morning from a nightmare filled with mold, structural problems, vacancy and lenders demanding their money. This is where preparation comes in, and having someone you can talk to about potential problems and how to head them off. Like excitement, fear can be good or bad — fear can make you cautious and smart or it can paralyze you into inaction. Whether you get a real estate agent, a mentor or a real estate savvy priest, it pays to have someone to bounce things off of, especially in the beginning. Gaining knowledge before acting, developing a tight, protective contract and performing comprehensive due diligence goes a long way to keep from becoming a straight-jacket.
As time goes on, I’ll be writing about all the specifics of investing in commercial property, about contracts, due diligence, zoning, pricing, etc., but for first time investors, understanding the emotions involved in investing and how best to deal with them is a critical first step. Having someone experienced to help you is a very smart idea. I once talked with a multi-millionaire in Rocky Mount, NC who had started his investment career with a filling station. He told me he was not the smartest man in the world, but that he knew how to find and use smart people. Pick the brains of someone who knows, use your emotions to have fun and act wisely you’ll be better off.