You’re not likely going to hear many people tell you that real estate investing is a mind game. It’s all about the numbers, right? Well, yes, but before the numbers is… your mind.
It’s true for anything you do that going into it with the wrong mindset will cause you trouble. I know my experience in life has been that just about every problem I have can be resolved with a change in mindset. The good news about that is we have control over our experience when we hold the power in our minds. The bad news is that our mindset isn’t always obvious, which means the solution isn’t always obvious.
In real estate investing, I’ve seen four primary mindsets be the culprit of getting people into trouble. I’m going to share those with you, along with an explanation of how exactly each one can get you into trouble. Hopefully being aware of these little mindset monsters will help you more quickly identify if you’re experiencing one of them, so you can make a move to quickly get out of it and continue towards your investing success.
Fear
If I were to pick one mindset that’s the most notorious culprit of holding people back in real estate investing, it’s fear.
I get it—there’s a lot on the line if something goes wrong! Real estate investing can require a lot of money, which means you may have a lot of money on the line. That money may be critical to you and your family, so if you were to lose it, that would be a major problem.
It’s not always about the money, though. What I’ve actually seen more often as the basis for fear, rather than the money, is what it would supposedly say about you [as a person] if something you invest in fails.
One thing that doesn’t help this is quite often our friends and family don’t support our real estate investing journey, often as a projection of their own fear. So if they poo-poo the idea, then you go out and do it anyway and then you fail, what’s their perception of you now going to be?
The best way to conquer a fear mindset is by really looking at the potential consequences. 9/10 times it will turn out that the worst-case scenario isn’t nearly as bad as you think. And if it is that bad (ex. you lose your family’s entire savings), then maybe you actually do need to reconsider making that investment.
One of the most powerful things I did as I started my investing journey was reading as many books as I could from the most successful entrepreneurs and investors out there. One of the reasons this was so powerful was because I got to hear how many times, and to what degree, each of them had failed along their journeys. Failure was such a pronounced theme amongst all of them that I realized great success comes with great failure. There’s no such thing as succeeding without failure. So rather than failure making me bad, doesn’t it instead mean I’m that much closer to success?
There are a lot of ways we could go with this debate about what failure really means, but what you need to know is that if you’re in the right mindset, there’s actually no such thing as failure, which means there’s nothing to fear.
{mic drop}
Again, this isn’t a message telling you to go out and naively risk it all. Losing your family’s entire savings account over a deal that you invest in while not really knowing what you’re doing is not at all something I recommend. But it is a message to tell you that there is a lot less to fear than you might think.
In my book, NOT Your How-To Guide to Real Estate Investing: Life Lessons on Hacking Your Mind Before You Hack Your Wallet, I have a couple different chapters that talk about fear and failure. Go check them out! They’re worth it, seriously. If for no other reason, to let you drop that curtain of fear. It’s a heavy one that is exhausting to carry around.
Overconfidence
Now we’re moving from the heartfelt and soft fear conversation into one where now I’m talking to all of you cocky sons of guns out there. You want to go diving into the deep end of the pool thinking you know how to swim? Go for it. To some degree you do have to dive into the pool before you’re completely confident in your swimming skills, but flinging yourself off the side into the water with no actual basis for thinking you know how to swim is bound to get you in trouble.
Real estate investing is a tricky beast because on one hand there’s no way to know everything you need to know before you try a deal, but on the other hand, there’s so much to know that if you dive in too soon, you’re bound to get yourself in trouble.
I can give you one hint that might suggest you’re in a mindset of overconfidence. If you don’t feel any anxiety about a deal, you might be too confident. While you don’t want to be experiencing so much anxiety that it keeps you up at night (that might be a sign of something totally different), it’s completely normal to have some anxiety about every deal we do. The reason for this anxiety is that there’s no guarantee that a deal will pan out, no matter how much research we do or how promising a deal seems. That’s just the nature of the beast.
The best way to enter into any real estate investment deal is with enough education to feel solid in what we’re doing, while not being naïve to the fact that something can still happen. When we acknowledge the latter, it keeps us humble in what we’re doing so that we in fact don’t throw ourselves into the deep end of the pool, thinking we have out floaties on, but we don’t and we drown. (too graphic?)
Ignorance
Remember that part where I mentioned the best way to enter into any real estate investment deal is with enough education to feel solid in what we’re doing? Please do that. Ignorance in real estate investing can be costly.
Ignorance can also be a byproduct of overconfidence. Another reason to not be overconfident.
It’s very hard to not be ignorant in real estate investing, and in fact, in most cases you’re going to get into all of your deals still with some level of ignorance. Why? Because real estate investing is very much on-the-job training because there really is no way to know it all before you start. So there’s a perfectly normal level of ignorance that we all possess, but there’s a greater level of ignorance that will get you into trouble if you have it.
This ignorance most often comes in the form of not actually having a clue what you’re doing. None of us learned real estate investing in school (unless schools today are suddenly teaching it), so we actually don’t know what we’re doing. But that doesn’t mean that you don’t have to figure it out.
Here’s an example. I can’t tell you how many people reach out to me on a regular basis and ask if I think a particular deal is a good one. Spoiler alert: I usually respond with, “Well, do you think it’s a good deal?” It’s not that I won’t answer, but almost always when they hesitate at that question, my next question is “How do you expect this property to profit?” Most often, they can’t give me an answer. This is dangerous ignorance—investing in a property that you can’t actually explain how you think it will profit. The whole point of investing is to profit financially, so if you don’t even know that much, where do you think you’re going to end up with on that deal, assuming luck isn’t going to jump in and save you?
The two things to NOT be ignorant of when you invest are:
- The basic principles of properties and of your strategy, enough to know how you can be profitable and what the specifics risks are
- The fact that you can’t know everything, and there’s a lot of things that can get you into trouble
If you at least keep your head on straight, know that there are things you don’t know yet, but also that there are important things you should know before you start, you’ll be miles ahead of a lot and in a great position to become a truly successful investor.
Overanalyzing
Then there’s the reverse of ignorance. You’re so focused on getting everything exactly right, i.e. going into a deal with ZERO ignorance, that you don’t ever actually end up doing a deal. The reason you never end up doing a deal is because there’s no actual way to know 100% of what you have to know before doing a deal as a real estate investor.
Hear me when I say:
You can’t know everything you need to know about real estate investing without ever doing deals.
Insert fear stage left. We’ve just come back around full circle to fear, yes? Over-analysis happens simply out of fear. It may be fear directly, or it may be out of perfectionism, which… guess what… is born out of fear.
If you can intelligently answer the following questions, you’re ready to invest and any more delay is likely you slipping into over-analysis.
- How do I expect this property to profit?
- What are the specific risk factors with this property (and strategy)?
- What are the risk mitigations I can take to help lessen the chances of those risk factors?
That’s it. That’s all you need to know. Everything else you need to know is going to come with experience.
Next time you’re wondering if you’re ready to invest, or wondering if you’ve slipped into “analysis paralysis” or “paralysis by analysis”, ask yourself those questions and see if you can answer them. If you can, it’s time to invest and not delay any longer because of fear.
There you have it. A checklist, of sorts, covering the most dangerous mindsets you can have as a real estate investor. Self-awareness is a major key to investing success, and in that self-awareness comes the willingness to call yourself out if you’re playing in a field of dangerous mindsets.
