How to Conquer the Skepticism That Keeps You From Investing

How many of you out there, especially the newer folks, run into issues of skepticism when it comes to jumping into this world of real estate investing? (I have a feeling a lot of hands went up.) The good news is: Skepticism is critical in this industry because if you don’t have it at all, you might get into some really funky deals. The bad news is, though, that skepticism very often holds people back from getting started at all and it can rob people of perfectly good opportunities for making great money and establishing financial security through owning real estate.

So what’s the solution? How do we balance skepticism in our real estate investing journey?

Two Kinds of Skepticism

One of the most beneficial things in anything in life is awareness. In the case of skepticism, just understanding that there are two types of skepticism at work and identifying your own skepticism as one or the other may be all you need to figure out how to let skepticism work in your favor and not against.

The two (unofficial) types of skepticism, both in life and in real estate investing, are:

Healthy Skepticism

This is the skepticism that keeps you safe. Without this skepticism, we might all follow our friends off that cliff. Or change our lives to accommodate what people tell us. Or buy that property that absolutely depletes our bank accounts (or more).

If you don’t have any skepticism, like I mentioned before, you could really get into some trouble. You will become a victim to so many things and in so many ways because there are a million voices around all of us at any one time. I’d venture to say 75% of those voices will cause harm to us (to varying degrees) if we listen to them! Healthy skepticism can keep us on our track, keep us safe, keep us moving along positively, and keep us in the best investing deals.

Unhealthy Skepticism

And then there is this kind of skepticism — the one that holds you back from all of the good stuff. This kind of skepticism is driven by fear rather than safety. I wrote an article a while back about the different types of paralyzing fears that cause investors to never make a purchase. Based on the comments on this article, it was very clear that there are in fact a rampant number of people paralyzed by fear that causes them to not move forward as investors.

Oftentimes skepticism can be pretty easily categorized as healthy or unhealthy. But other times, it’s not so easy. In those cases, how do you determine which version of skepticism you are experiencing, so you can adjust your next move appropriately? Well, I can’t really say. It’s situation-dependent, it’s comfort level-dependent, it’s education-dependent, and there is really no definitive answer. BUT I can give you some guidelines to help you figure out if your skepticism is warranted, or if it’s just there to hold you back.

7 Strategies for Conquering Skepticism

And by “conquer,” I mean “understand.” If you can understand your skepticism and the true root of it — if it’s skepticism for good reason or skepticism that will hold you up unnecessarily — then you can make an accurate assessment as to how to go forward.

As soon as you catch yourself feeling leery about an investment opportunity, slow down and go through this checklist in order to determine the source of your skepticism.

Don’t Rush

If you have to rush into any deal, you should definitely be skeptical (in the healthy way!). Now, it is true, however, that oftentimes good deals do get picked up fast, so there are times you will have to move fast accordingly. But the quickness should only come from signing the papers, not from making a decision.

See what I mean? If you know you want it, and you know it’s a good deal, move in and fast. But deciding whether you want it (or something like it) or if it is a good deal is the part that should not be rushed. If you have enough education under your belt, you should be able to decide fast if the deal is worth it. Speaking of…

Be Educated

The more education you have on how deals work and what deals are good and bad, the less skeptical you need to be and the faster you can move. One nice thing about real estate investing is that most of it is based off of numbers (and facts), rather than emotions. That makes it easier to determine what constitutes a good deal, so if you see the numbers and the facts and they support the deal being a good one… there you go. Knowing numbers and facts only requires education.

Look at All Sides

This is often the pros and cons, but possibly some other random sides as well (whatever those may be). Basically, just be open-minded to see various perspectives of any deal you come across. Who is involved, what is the deal, how much education do you have going into making your decision, what are the potential outcomes, what is your own motivation, and what is the risk?

Weigh the Risk

Really look at risk, which is two-fold:

The more general risk assessment just looks at the overall risk, regardless of the details of the deal itself. I oftentimes ask myself the question, “What is the absolute worst thing that will happen if this goes sour?” You might be surprised at the answer (it may not be as drastic as you think).
Then, the second has to do with the details of the deal. A lot of this goes back to education — do you know what factors of a deal increase and decrease risk? Make sure you know these things! Then weigh them out as compared to the potential return of the deal (i.e. if I am going to take on a high risk deal, there better be high potential returns!).

Look at the Source

Where is this deal coming from? Who is pushing it? Look at what that person or company will get out of the deal if you go forward. Realize, though, that the real estate industry basically revolves around people making commissions so someone making a commission isn’t always a good gauge to look at. But it is worth considering.

In those cases, really focus on the worth of the person or company. Are they pushy? Do they only tell you the good things and give you no bad? How well do they talk through the risks and the options? Do they personally invest in what they are promoting to you? If they aren’t pushy, if they tell you both the pros and the cons, if they really talk through risks and options, and if they have the big bonus of investing in the same thing they are talking you through — then you have good reason to trust them.

Another thing to know in real estate investing is you can do every bit of due diligence possible and make decisions for yourself regardless of what anyone tells you is good or bad. You are the deciding factor at the end of the day and absolutely no one else. (Remember that!)

And when all else fails?

Follow Your Gut

It may not always be easy because we are a society that has gotten quite good at distrusting our gut, but know that it is there to help you. One of the easiest ways I use to know what my gut is trying to tell me is to feel which option — do the deal or don’t do the deal — makes me feel more excited, happy, or content. Any of those three emotions go a long ways in knowing which direction you are supposed to follow! They are far from a guarantee, and they are quite easy to skew which makes them tricky, but try them on for size. And lastly…

Remember That Failure is Inevitable

Welcome to life. Remember that no one on this planet can avoid failure, and that includes real estate investors! The further you go along as an investor, the more inevitable failure is to happen. This ties into risk — how much can you risk doing a deal? Now, remember what I said about risk, though — there are huge ways to help mitigate risk. So no, you are not required to fail and that failure doesn’t have to be huge, but do know that if something goofs up, you are only joining the awesome club of successful real estate investors! It’s kind of a rite of passage to have some stories of goofs to share with the others. With the pressure of failing off, how does that change your skepticism?

There you go — 7 ways to help sort out your own skepticisms! Let this help you decide if your skepticism is for good reason and potentially in place to save you from doing a bad deal or unhealthy skepticism that is just merely holding you back due to fear.

Hey, all of you experienced investors out there — what is your experience with skepticism? Has it graciously saved you from doing bad deals, or has it held you back in your investing?

Leave your comments below!

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.