If you take a survey of the general population and their perception of real estate as an investment, you will likely find a couple of things consistent in their responses. First, most people recognize that real estate investing has the potential to make a solid return when done correctly and second that it has the potential to lose money when done incorrectly. While both of these statements are true, if you probe further into the reasoning behind these assumptions you will often find that there is minimal knowledge or experience upon which they are based. Rather they are the product of what that individual has heard from a friend, the news or perhaps some other source whose primary knowledge base is not investing.
Is Fear Always Bad?
Fear is a natural emotional response that we have when confronted with something that we see as potentially causing harm to ourselves or others. Fear can be a good thing as it prevents us from making choices that could have a negative impact. The problem with fear comes when the assumptions behind it are false and it causes us to make decision which we believe is conservative, but in reality is holding us back from our full potential. As a professional real estate investor I see this regularly when speaking with newer investors who understand the merits of real estate investing, but allow fear to keep them from actually making an investment.
How do you overcome unhealthy fear?
While fear might be a natural response, it doesn't mean that it is always the correct one. So how can we overcome fear in the pursuit of a new goal or better life? Here are a few suggestions.
Determine if the fear is based on reality or not: The first thing that must be clarified is what the reality is of the the situation at hand. It is possible in a given situation that there really is a large risk of something negative happening in which case the fear might be healthy. Eliminating this possibility is the first action to take when assessing a given fear.
Understand the worst possible realistic risk: If the initial concerns are quenched by a deeper dive into the situation, then the question must be asked as to what the worst realistic possible scenario is for this case. We often find that after reviewing all the facts that the worst scenarios are often not as bad as we initially imagined and that there are a number of things we can do to mitigate the risk of them happening. This often brings about peace of mind to the situation.
Have an honest conversation about what the risk is of not taking action: We often look at risk as being a one sided argument, however that is rarely the case. I regularly speak with newer investors who want to understand the risk of real estate investing, (which is certainly a wise conversation) however it's rare to have one of those same people ask questions about the risk of not investing money. I believe this is one of the many reasons today that we see so many people reaching retirement age before realizing that their nest egg is insufficient to enjoy the life style they had hoped to live. Therefore, I think an honestly assessment of inaction is also important when weighing the risk of making a given decision.
If you found this article useful, then check back in for next week's discussion which will specifically be about risk in multifamily and how it compares to other types of investments.
There are many important considerations when evaluating a multifamily deal and we make it our mission to careful vet each of these items. If you would like to learn more about passively investing in multifamily, please set up a meeting with us through our Calendly link and subscribe to our weekly blog here.