When Investing in Real Estate, It is Not an Emotional Decision Such as When You Purchase your Home Where You Plan on Living
It is always better to control the emotions when making the decisions related to investing in real estate. Obviously, rational thinking is better than the emotional thinking when it comes to actions related to money. If you put emotions first when dealing with financial matters such as hard money loans, the potential of losing money increases, particularly during the hard times. Therefore, as an investor, you should be able to recognize the behaviors that trigger your emotions related to investing.
Common Investing Emotions You Must Overcome
Urge to Follow the Crowd
One of the most common emotions related to investment is following the crowd. You might feel safe to do what others do in common. Nevertheless, apart from just doing what others do, you should depend on the analysis; if the analysis portrays ‘something is not-right’ it is better to be cautious instead of following the crowd. There are many folks who are getting into real estate, not everyone possesses the skill, time or work ethic to make sure their business are successful. A strategy might work for one, but not for you. There are many wholesalers who provide a valuable service in connecting distressed home sellers with the investors who can rehab a property and add value to the neighborhood. However, do not just rely on their estimations for rehab costs or after repair value. Please perform your own due diligence so that you can be confident in your investment.
Feeling of Overconfidence
At times things can go well for investors. Under such circumstances, they can be lulled with an overconfidence of security. The “I can do no wrong” mindset can be dangerous in real estate investing. After several successful deals, one could lead themselves down a path for riskier projects and potential for losses. Losing the sense of concern is a common instance when the gains come easier.
If you happen to experience this feeling as an investor, you should re-think seriously your decisions and consider the actual consequences. Think of all the possibilities that would change the current market trends. Be ready with alternative solutions that might be useful in case of things going wrong against your decision. What has changed that could alter my rehab costs from project to project? Will I need another hard money loan? Are there market changes? New happenings in the neighborhood that could work against me in my next project? Is demand steady to this area? Any number of things could change from project to project. It is always important to evaluate risks continuously.
Avoidance of Risk
It is a professional investor’s characteristic to concentrate on the assumed risks first. Parallel to this consideration, they put together risk management strategies too. Then there is time to examine potential return. Avoiding the potential risks when things going well, is dangerous move; the long-term rally of good times is associated with the risk of reversal. Avoiding such risks is an indication of putting yourself into danger as an investor. The most effective way to stay away from such emotions is continuing your research and due diligence. Continue your risk assessment to work without fail. Deploy risk reduction strategies. Be sure to have a goal and stop where you should.
Remember that the economy in general and real estate is cyclical. Not every house that needs fixing is a good deal. There are many other factors to consider that we explore throughout our other blogs.
Investors tend to forget the investing rules when things go well for them. Be the wise investor that recognizes the warnings signs and put yourself into the correct path to creating wealth through your real estate investments in Colorado. As always, ask us how hard money lending can help you accomplish your goals!