I had some fun with this week’s article by recording a video. I am so used to simply writing, so I wanted to change up my own routine a bit. Take a look at the video, and then be sure and connect below in the comments. I would love to hear some of your own irrational behaviors (hint: these are mine!), as well as your thoughts on how we can avoid them!
How I Bought, Rehabbed, Rented, Refinanced, and Repeated for 14 Rental Properties
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5 Irrational Behaviors to Avoid When Real Estate Investing
Anchoring is when we rely heavily on the familiar to make decisions with which we are unfamiliar. We anchor to what we know, rather than seek advice or education. It just seems easier to do, rather than admit we need a little help.
2. Loss Aversion
Loss aversion describes the reasoning we use to justify riskier investments and strategies when they cost less money out of pocket. Our aversion to losing money leads us to choose riskier options that cost less because when we lose, we feel “less bad” about the loss.
The smarter decision may be to choose the investment that costs more dollars, but comes with less risk.
3. Gamblers’ Fallacy
How often do we make decisions and rationalize those decisions by citing some random occurrence or chain of events?
This is called gamblers’ fallacy and includes our amazing ability to put a whole lot of weight behind something that was completely random and should not even be considered when making investment decisions.
4. Confirmation Bias
Have you ever ignored a piece of information that went against the decision you wanted to make? Do you consider that information or do you ignore it?
If you ignore it, that is a great example of confirmation bias. All of us are perfectly able to ignore data and information that tells us we are making a bad decision while we look for any information that confirms what we want to do!
5. Herd Behavior
This one should be fairly self-explanatory. DO NOT FOLLOW THE HERD! Everyone else doing something, buying somewhere, hiring a coach, buying a piece of collateral or program… these are not reasons for you to do the same.
Do not be influenced by others, but when seeking advice from other investors, be aware that what works for one does not always work for another. Make your decisions based on you!
Hopefully you enjoyed the 12 minute video with the quick explanation of the 5 irrational behaviors that real estate investors exhibit, and I would love to converse below on your thoughts!
What irrational behaviors do you find yourself exhibiting? Do you share any of mine?
Let’s talk — leave a comment!