Just when you think you’ve found the perfect asset, the fear sets in. Are you really prepared to spend so much money on an acquisition? What if the market isn’t as favorable as you thought? Is there a chance this purchase could set you back financially? What if you experience problems during the lease-up period?
Both first-time and veteran real estate investors are all too familiar with these doubts and questions. Real estate investing can be risky, and it involves a lot of money. Many investors have been especially cautious since the 2008 global financial crisis, which wiped out real estate values in formerly dependable markets.
It’s no secret you have to spend money to make money in the real estate industry. That doesn’t stop some investors from getting cold feet when the date of closing a purchase approaches!
If you’re starting to have second thoughts about your upcoming real estate transaction, try to overcome potential fears by putting things in perspective. Taking a step back and taking a long, hard look at your investment strategy, the asset you’re planning to acquire and your long-term goals can help you overcome your fear of investing, and move forward with the transaction.
Embrace your fears
One way to overcome the fear associated with a real estate transaction is simple, but also very difficult: Don’t. In many cases, a healthy amount of fear and skepticism can help mold you into a shrewd investor. If you approach every deal with the fear there’s something inherently wrong, you’re more likely to spot red flags and avoid potentially disastrous purchases.
Fear only becomes a problem when it prevents you from making worthwhile investments. If you believe your fear has cost you potentially lucrative investment opportunities in the past, find a way to balance your fear with optimism. While there’s a chance your transaction may fail, there’s also a chance it may succeed.
Learning how to embrace and manage your fear will help you pursue more lucrative, less risky, transactions.
Determining the source of your fear
Many fears relating to investing and other financial decisions stem from your desire to avoid disappointing the people closest to you. For instance, you might be afraid your spouse, children or parents are disappointed in a failed investment transaction. They may feel like your bad investment shortchanged their own financial opportunities. This is especially true when investing with partners or with private capital.
Learning how to communicate your investment objectives and strategies with the people involved in your life can help alleviate concerns you may be feeling. Communicate the risks associated with the investment to them. Then, outline your plan to recoup your investment if something doesn’t pan out as planned.
Many investors also fear market conditions. While real estate is a dependable, solid investment in the vast majority of cases, markets are subject to bubbles. Some real estate investors worry they’re buying right before a bubble bursts, leaving them with an underwater mortgage and rental rates far lower than they anticipated.
This fear is usually the result of a lack of planning and foresight. Savvy real estate investors know how to read past and current market trends to determine whether an investment will pay-off in the long-run. It’s important to carefully consider the potential risks associated with an investment you’re pursuing, and whether it’s ultimately worth tying your capital up in.
Educated investors are empowered investors. If you’re fearing a sudden shift in market conditions, it’s a sign you should probably hit the books and start studying economic factors and trends in greater detail.
Strategies and plans reduce fear
One way to manage your fear is to carefully outline strategies and plans for your investment portfolio. If you have a clearly outlined series of steps, you’ll be able to follow a wide range of potential transaction outcomes. You won’t have to worry about what you’ll do in future circumstances—it’ll be part of the plan!
For every ‘what if,’ scenario that pops into your mind, outline a plan of action. If you’re wondering what will happen if you discover problems with the property you weren’t aware of at the time of sale, for instance, outline a clearly defined set of steps you’ll take in that scenario.
Creating your own personal investment guide can go a long way toward alleviating anxieties surrounding a future investment. It also allows you to respond to problems that arise more promptly and effectively.
Using this strategy, you’re actually leveraging your fear to make you a better, more prepared investor. Taking your anxieties and using them to improve your investment strategy may seem counterintuitive on its face, but it’s a great way to make yourself feel more comfortable with your fear. You’ll become a better investor in the process.
Stay action oriented
The worst thing you can do as an investor is allow your fear to paralyze you. Rather than letting your fear get the best of you, use it to approach real estate transactions with caution and prudence.
If you’re feeling good about a transaction, but still have a few nagging doubts left in your mind, outline the potential risks of your investment. Then, develop solutions for problems that may arise. Then, act. Rather than sitting on the transaction, potentially allowing it to slip away, you should complete the purchase.
Learning how to harness and leverage fear toward your advantage allows you to become a better, more effective investor. The day you stop fearing completely is the day you’ll make a large, costly blunder. Instead, take your fear and use it to inform your investment decisions.
Connecting with other, more established investors can help provide you with better insight into the ways investors operating in your market overcome specific problems and anxieties, as well. Engaging with a community of real estate professionals is a dependably helpful activity. It’ll provide you with new partnerships and fresh ideas to help you recognize and conquer your fears.