The One Thing All Experienced Investors Know to Be True

Listen, I’m not one to give away people’s secrets, but this one is huge. Truly, every new investor (and maybe even some less-than-new investors) needs to be made aware of this one. Otherwise, I have no idea what you’ll be in for.

Are you ready for it?

Can you handle it?

Are you sitting down?

Quiet down the room!

The One Secret Every Investor Needs to Know

Now that you’re in position, here goes. Again, I hesitate to tell you this one, but it’s a must-know if you want to get into this world and succeed in it.

The secret is:

Shhhh…..

It is possible that your investment could fail.

Gasp!

That’s right. You heard it correctly. It is possible that the investment you make could fail.

It’s OK. Take your time to process, and let me know when you’re ready.

Fireside Chat About Failing

There are some basic points I need to make related to all of this that I’m going to go ahead and make.

If an investment you make fails, it does not mean you are a failure.
The reason more people don’t become real estate investors is because the fear of failure prohibits them from doing so.
The most successful investors — real estate or otherwise — lost huge before they ever won big.
The world does not end if one of your investments fails.

I would say that if I could only choose two of those points to repeat over and over to you to the point of complete annoyance, they would be:

If an investment you make fails, it does not mean you are a failure.
The world does not end if one of your investments fails.

Seriously, both of those are so true if an investment you choose conks out. You don’t suck, and the world won’t implode. In fact, it’s unlikely anyone will notice at all.

I know. Mind = blown.

My First Investment

Yep, take a wild guess. It failed.

I won’t go into details about the investment or why it failed — because neither of them matter for this purpose (and no, it wasn’t a turnkey!), but I do think telling you about it is critical in trying to convince you that an investment bunking out is of absolutely no reflection on you as a person or your chances of being a successful real estate investor.

Basically, I went $40,000 into what seemed to be a super-killer-amazing-fun deal. I already owned a rental property at that time, but it wasn’t original meant to be a rental, it was just the house I lived in when I was in Atlanta and then took a job transfer to California unexpectedly so decided to rent it out. So I did have that property, but this other investment was literally the first intentional investment I ever tried pursuing.

The investment seemed solid, I did a lot of due diligence on it, and I was totally pumped about it. Long story short, a couple years after putting in my initial $40,000, I knew it was all lost.

Here were my thoughts at the time surrounding the loss:

“Welp, if $40,000 is the most I lose as a real estate investor, I’m doing pretty stinking good!”
“Yay, one big fail out of the way! I’m that much closer to succeeding!” (Per failure versus success statistics.)
“What a [insert extremely choice phrases and adjectives that could describe a soulless human beingin regard to the seller of the investment here]!”
“There’s no way I’m a total idiot because there were professional investors who literally put in hundreds of thousands of dollars of their own cash into this too, so this can’t be a reflection just on me…”
“What a great story this will be for later.”
“Chop wood, carry water.”

Not to say I’m some big expert on surviving failure, but I would say I did a pretty good job on this one. I admit I’m a lot like this with pretty much everything in life, so I am coming from a place of not naturally fearing failure in the first place, but I’m hoping sharing some of this will help any of you who do more naturally fear it.

I also don’t want you to think my $40,000 failure didn’t impact me negatively. Did it completely suck? Absolutely. Do I wish I could get that money back? Constantly. Do I ever feel stupid that I bought into that investment? Most definitely.

It’s all about the recovery.

Recovering From a Failed Investment

As the saying from good ole George Custer goes,

“It’s not how many times you get knocked down that counts, it’s how many times you get back up.”

All that matters is that you get back up and try again.

No one ever said you shouldn’t feel an emotion if something you do fails — that would make you inhuman. Allow yourself to feel the emotions, allow yourself to do whatever you need to do in order to respond to what happened, but not too long after that, you have to start thinking about your recovery.

Let’s get back to the two pertinent bullet points for a second, and I’m going to add some notes to them for you.

If an investment you make fails, it does not mean you are a failure.

Seriously, you may have a hard time believing this, and you can believe me or not, but you are 1,000x cooler if you just get out and try something and fail, versus being the guy who never tries anything. And you will always hear me say I love a good story. Sharing real estate tragedies catastrophes misfortunes goofs makes for a phenomenal round of story-telling! Add a little wine in there, and a whole group of you can end up laughing until the cows come home.

It’s like me and my pilot buddies. We are forever and a day when we hang out together, battling between who did the stupidest thing in the air and who has made the dumbest decisions, etc. We laugh like crazy! As long as you’ve taken the time to reflect on your goof and learn from it, you are only that much more awesome when you’ve at least taken a chance. And seriously, I dare you to tell me Warren Buffett or Donald Trump (in investor context, not political context) are failures since they have both failed to the tunes of millions.

The world does not end if one of your investments fails.

Like I said here too, it’d be a wonder if anyone in the world even notices your failed investment! People buy investments that go belly-up all the time, and there is always room to recover. Your world doesn’t have to crash, and the world around you certainly won’t crash.

Different scenario but same context — I used to subconsciously believe the world would end if I didn’t pay a bill on time. Seriously, if I got a notice I had forgotten to pay a bill, I’d flip! But then I quit my high-paid corporate gig to start my own business, and as entrepreneurship goes, I was flat broke for quite a decent amount of time during the transition. There were a couple times where I just could not pay a particular bill when it was due, and I had to pay it late. I cringed going into this, but I didn’t have a choice. But then the funniest thing happened — when I didn’t pay the bill, nothing happened. The world didn’t end, my body didn’t melt into the floor, and the devil himself did not call me to curse me.

I was floored. The world didn’t end. Seriously, I couldn’t have guessed that. And more than that? Nobody cared! Sure, whoever I owed the bill to eventually informed me they were missing the payment, but they didn’t even say it in a harsh tone. I mean, unbelievable! Same with investing. If you invest into something that goes bunk, nothing really happens.

What Really Happens if an Investment Fails?

I just said nothing happens if something you invest in goes bunk, didn’t I? Me saying that was more specific to you as a human and your worth on the planet.

Obviously, there is one major thing that does happen — you lose money.

But again, you have to be able to separate this out from the rest. You losing money is a completely different animal than you losing your self-worth, your confidence, or your drive. Losing money is much easier to recover from than losing any of the rest of those.

The best rule of thumb to help out with this?

Never invest money you can’t afford to lose.

Another admission on my part about my diving into that $40,000 — at the time I decided to dive into that, I did not have any family to support (other than my dog), and I would absolutely be the only one affected if I were to lose that money. That is a major difference from someone who is supporting a family where that money might be a lot more important. So maybe someone with a family might not want to risk $40,000 on a riskier investment type like I did. Maybe shooting for an investment with less risk and ensuring there’d still be capital leftover to feed the family would be better.

Or just from a budget perspective — maybe $40,000 is peanuts to you and an easy risk, but for others it might be all they have. Always know what you are risking if you get into an investment.

On the flip side to always knowing what you are risking, the other side of that is not knowing exactly what it is you are fearing in the first place.

How to Crack the Code of Fear

Knowing what it is that you actually fear is critical in getting past fear. Or it’s critical for knowing that you shouldn’t get past it! If $40,000 is your entire life savings and you have a spouse and three kids who depend on you to eat, maybe you should fear investing $40,000!

But when people come to me and say they are fearful of getting started or buying their first investment, my very first question is, “What are your fears exactly?” You’d be amazed (or maybe you wouldn’t) at how often that is the first time that even that person has tried getting to the root of their own fears.

Once you can specify your fear(s), things get much easier.

The minute you can specify your fear(s), you can find out or decide if there is a mitigation for that fear. I’d say nine times out of 10, there’s a logical mitigation. If there isn’t a mitigation, like in the case of the family having $40,000 as their entire capital and wanting to invest it, then that in and of itself may be your answer. Or maybe it has something to do with the market you are buying in or the property that you are looking at and you have a fearful feeling about them, maybe you should be worried.

The trick is deciphering. What is it that you fear, is the fear legit or not, and should you move forward?

Checklist for Moving Forward on a Property

This checklist is to help you in keeping fear where it needs to be in your journey toward whatever property or investment you are looking at.

Be educated. The more education you have, the less fear you are likely to incur. Think about it: If you know things, what’s there to fear? Keep any fear you experience specific to only the unknowns you can’t know (there are plenty, so don’t slip into analysis paralysis trying to know everything). Know what you can, so what is left to fear is minimal.
Know what you can lose. Know what you can safely lose or what amount you can feasibly recovery from. Knowing this number ahead of time, before looking for investments, can help take emotions out of the buying process (which can trigger you to buy outside of your money safe zone) and eliminate anxiety.
Specify your fears. If you are experiencing fear, list out the precise fears you have. Once those are written out, confer with a trusted mentor about them and see what mitigations may pop up. Go through your list, and once each specific fear is addressed, see what you are left with.
Pull the trigger. Assuming your education is in place, you know that you will be financially safe regardless of what happens if you do this deal, and there is a logical mitigation for your fears; you just have to pull the trigger. This is the one that gets a lot of people. You just have to do it.
In case of failure… First, verify you are actually dealing with a legit “failure.” If you just hit a rough spot in the road on your property, that doesn’t necessarily constitute a failure. That’s just called a bump in the road. Learn from it, recover from it, keep going. If you do experience a big fat failure, though, refer to the bullet points above, reflect and learn from the situation as best you can, and start hunting out your next deal — knowing you are wiser and smarter this time, and the only way to succeed is to try again.
Tell your story. There are few better ways for new investors to learn than to listen to the stories of the experienced investors. Why reinvent the wheel? “Hey bud, this method is BUNK, don’t do it!” OK, well, I might listen to that guy’s story before I go goofing up the same way he did. So not only are real estate war stories great for laughs around a wine carafe, but they are extremely valuable in helping other people learn as well.

What about you? Any massive failures you got the chance to recover from? Any advice in the failure department for the new investors out there?

Share all of your stories!

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