Cats are curious creatures.
Scaredy-cat is an expression because sometimes cats are afraid and timid. Yet other times they are bold adventurers, climbing to the highest highs and roaming far beyond their home, exposing them to many dangers for just for the sake of exploration.
Human behavior isn’t as far from animal behavior as we like to think. We live in a structured environment and don’t have the danger of predators or starvation. But rather than a blissful existence, we make up all kinds of fears that are irrational in comparison.
These fears won’t kill us, but they will hold us back.
The Greatest Fear
One of the most common fears in America is public speaking at 28.4% of the population. How exactly is that going to hurt you?
There are no physical dangers so we naturally imagine social fears. For example, fear of embarrassment in front of a large crowd. Some people tackle this by taking public speaking classes to help with their nerves or they may look at using CBD gummies UK products, for example, so they can calm themselves down before getting on stage.
From that same study, 37.4% are afraid of running out of money. I would bet that the proportion holds regardless of income. So roughly 37% of people who make $30k have money fears and 37% of people who make $100k have money fears. Same with $250k. Maybe it’s irrational, but that doesn’t make it false.
There are a ton of these little human quirks from made up fears. For example, losing $100 is over twice as painful than gaining $100 is positive – our behaviors reflect this loss aversion even if logically it doesn’t make sense (see also prospect theory).
Can you identify areas in your life where your fears are causing you to behave irrationally?
Side Note: My favorite book on behavioral economics is Predictably Irrational. If you read it and come away believing in the Efficient Market Hypothesis, please never visit this website again.
Facing Uncertainty
Anyone can make a decision with perfect information. Yet this rarely happens in real life – you can’t be certain how the decision will turn out until after you make it.
Visualize this as a hike through the woods to the top of a mountain. When you start, there is just one path, but quickly it branches into several options. There is more than one way to reach the top, but some paths will not get you there. Should you even start on this journey?
The best decision makers realize their blind spots and forge ahead keeping them in mind. As new information comes in, like the path turns and starts going back down the mountain, they can adjust their plan. They know there is uncertainty, but it doesn’t hold them back. They are confident in their abilities to pull in new information as they go and that they will reach the goal even if the original plan isn’t perfect.
This is uncomfortable. We would much rather know exactly what the entire journey would look like before taking the first step.
It is a learned skill to be able to push your comfort zone.
How can you take action even when you face uncertainty? When do you have enough information to get started on the path? How can you keep learning along the way?
Adjust Your Mindset
Many reading this are overachievers, like myself. This group has a greater tendency to be control freaks – we want to be in charge and handle everything ourselves because we can do it better than anyone else.
We have high expectations and aren’t used to failing. The idea of starting on a path without complete certainty how it will wind through the woods to the top can make an overachiever feel powerless. So we take less risks and stick to things we know well.
Let’s tweak your mindset. View the journey as an opportunity to grow. All the uncertainty that exists is something that you will learn along the way. An opportunity for a power-up.
Yes, the first journey is uncomfortable and scary. But the next time you want to go to the top of a mountain, you can draw from your experience and it will be much easier.
Combat the fear of the individual journey by taking a step back and looking at a lifetime of journeys. Whether you succeed or fail this time, you will be better equipped for journeys the rest of your life.
Applying This Mindset to Rental Properties
There is an incredible amount to know about investing in rental properties. Mortgages, contracts, property management, taxes, cities, neighborhoods, schools, crime, demographics, legal entities, insurance, capital expenditures, rehab, and on and on.
You don’t have to be an expert in order to take the first step on your journey.
The first time you purchase a rental, shoot for the most conservative path possible. You might not have the upside that an expert investor will have on his or her deal, but you will learn a lot.
For me this was purchasing turnkey, where someone else does the purchasing of the distressed property and rehab work. Rather than seeking out this company directly, I went through a national marketer who vets the turnkey companies and provides education along the way in the form of an investment counselor.
Is this the perfect way to go? No, but I protected my downside and got started on a conservative path. I’ve learned a lot so far and can one day apply my experience on more advanced paths.
If you haven’t purchased a rental before, how are you going to take action in the face of uncertainty?
If you have purchased your first rental property, how did you make that first step attainable?
i only have one rental, but i am renting it to my in laws at the moment. making money? not really other than a measly $50 a month on top of my mortgage and i also told them that they have to fix most things that break down. my mortgage is $ 1350 and rent should be in the $2200 plus. I dont feel as i am losing anything, at the end of the day my father in law is a handyman and he have done thousands of free work for us and we feel that we are helping them. By the time they move out if they do 3 plus years at least, the home will be paid off. I am planning to have more real state soon but things are kind of tied at the moment.
That’s not so bad. Much better than helping them financially by handing them $800 a month to subsidize their rent somewhere else. Even though you are sacrificing a lot of cash flow potential, you still get the other 4 components of return (appreciation, tax benefits, mortgage pay down, inflation benefits). It sounds like you are at the tail end of your mortgage, so a lot of that rent money is going to paying down the balance, not interest.
Family comes be before money any day!
yes, we bought it on 2012. I was paying 3000 to the principal the first two years.
Wow, that will pay it down pretty fast!
Yes yes yes. This post was exactly what I needed to stumble upon today! I am a bit freaked out of actually taking the plunge and purchasing my first rental. I’ve looked at a million of them, I’ve run the numbers for ROI etc probably thousands of times, but for whatever reason, just can’t seem to pull the trigger.
Starting out conservative was exactly what I needed to hear. I probably should be a little weary of distressed properties until I get my feet wet. Thanks for sharing!
Thanks for reading and glad it was what you needed to hear! It can definitely be a little scary at first. Start small, align yourself with some experienced people rather than doing everything on your own.
Great article. I have read up books, podcasts, bigger pockets and everywhere else for couple months, then it become fear to make a move. I stumble through some blogs like these before and I decided just move forward with turnkey 1st and get my feet wet. I got 3 properties in 6 months and even go through some complex financial leverage on non recourse loans. Each step I make, I get to know more and more people, learn more about the rule for each step, who to call for each step. You just figure it out when you inside the process. when the mind want the mind will get it.
That’s great to hear! I’m glad to hear you came to the same conclusion as me to go with turnkey first to get experience. Too many people want to get to the major leagues and don’t consider spending time in the minors could help them gain experience.
How did you get past the fear of meeting / talking with people about it? How did you go from books / podcasts to actual conversations? Was that tough?
Adter reading so much, i dont know which direction to take. But I know inside me drive for passive income only. I have no extra time. I go to local meet up and talk to as many people as possible during 2 hours networking and learn how they started out of state investment. 90 pct of people at meet up are flippers. spent more time talking yo people who do buy and hold out of state. No one i talked to do turnkeys but then i learned it take them 6 months or longer to get cash flow . The have agent find on mls, fixed up using agent handyman and agent list for rent for them. They do BRRR strategy. They could save 10 to 20k equity but take up 6 months or longer to completed the processes. I suggested people do conventional loan on first deal because bank and appraisal looking out for your benefits with 500 fees. Use inspector and reinspection services if buyer don’t plan to be at the location. 900 save you time and headache getting things done for 2 months and completed. To me it worth my time. Trust but verified is the key.
Ya, there are so many different ways people do real estate, it can definitely be overwhelming. BRRR is great as well as local, hands on, but it’s not the only option. For people who live in high cost areas, that won’t work.
“Trust but verify” – so true!