As a beginning real estate investor, and even now, I realize the WORST mistakes that I suffered through occurred because of emotion-based decisions. I’m an emotional temperament, which means I can get caught up in the fervor more so than most. However, as I learn from my previous mistakes and lessons, I see that even though I remain emotional in my private life, I have become more and more emotionless in my real estate investing, and its been all for the better.
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Its Not YOUR Home
The biggest area that I was sucked into, as well as other new investors, is trying to buy in the place we want to live.
Now, on the surface that’s not an automatic disclaimer, but a deeper look shows that the hottest place to live in town doesn’t always translate into a good real estate investment.
Yes, you can picture yourself nesting and inviting friends over, and walking to the local bar scene, but that doesn’t translate into a sound investment all the time. Always keep looking at the numbers, and choose strategically. The numbers should tell the story, and you have to put the nice shining house behind the one with the dirty carpets that need to be replaced, if the former gives you negative a cash flow and the latter positive.
Putting In The Wrong Tenants
Boy, have I made this mistake many times before before I wised up. Seriously, tenants I am a little embarrassed to tell other people I use, just because I was desperate for money. I mean, I had spent all this time and money, and I had to prove to myself and everyone else i could rent it out.
I put in tenants with shaky work history, and some tenants I didn’t really like, just because I wanted to make money now. Big mistakes that can and will cost you in the long run, when they can’t pay the rent, their rude, and you realized that if you were running this as a business, they never would have gotten inside your property in the first place.
Emotional Investment with Tenants and Contractors
This one comes up when you start listening to the when/where’s and whys someone isn’t paying the rent.
I used to listen, and I used to sympathize, and I would to take my tenants problems as my own.
I am not here to be a credit counselor, or your soundboard for excuses, I am here to run a business. This is my investment in my retirement plans, and that’s large enough for me to take my bleeding heart (and its under this hard real estate investor facade I have going on), and say, “I’m sorry to hear that, I will still go along with the paperwork, but if you pay by this date you can avoid an eviction.” Nice and simple, and you don’t have to spend the time wondering if the excuse their giving you is even true (I mean, why is it always lost in the mail?).
With contractors, sticky emotional expectations and disappointments made my work so much harder. Now, I accept that I thought I was getting a Maserati but a station wagon shows up. You can’t squeeze blood out of a turnip!
Yes, I am disappointed internally when I pay for a service and I think im getting the short end of the stick, but now I take a different approach.
I let the disappoint wash over me, and I decide two things: 1) I will accept they are not the best, and it will take longer/more expensive than promised, and I can live with that until the project is finished or 2) If its a contract that has many parts (where this usually shows up), I can end at strategic points if I don’t want them to finish. On point number two, I always try to have multiple payment schedule, so that I can see a logical break and payment point based on completed tasks.
Usually, I will stick it out with a contractor and not get so upset over it, but I am okay with the option to halt the project. My stress levels go down when I see things through this light. More and more lately, I modify the statement of work and contracts with more than the contractor gives me (logical break and payment points based on completed work, clauses on what happens when you’re late, clauses on what happens if they give the wrong estimate, clauses bonus for it they finish on time, etc), and I have to tell you, I love it. It takes emotion out, and puts in cold hard facts on what is expected. Those documents, based on my experience, get longer as I learn more, but they also keep my business a business.
This is a subject that a newer investor will learn the hard way, but if they can think about these issues from the beginning of their career, it will make their path a lot easier, trust me.