How to Be the Smartest Real Estate Investor

girl smiling by computer

How many times have you been told that you have to keep your emotions out of your investment decisions?

I’ve even written about the dangers of emotional real estate decisions.

The problem with believing there is NO place for emotion in your real estate investing is that it ignores the simple fact that emotions actually allow us to make wise decisions and think clearly. Emotions help streamline our thinking so we can process many factors into a choice.

The issue isn’t that you allow your emotions to impact your investing decisions. The issue is when your emotions surge out of control or when you’re unaware of what you’re feeling and why.

In a fascinating read by Daniel Coleman called Emotional Intelligence, he says that IQ only factors into success 20% of the time. Emotional intelligence, like the ability to motivate yourself, understand someone else’s feelings and persist in the face of frustration, play a great role in your ability to succeed.

If you didn’t already fear a world of leaders who have been raised playing sports where you don’t keep score and where you’re given prizes just for showing up, thinking about this should do the trick. We need to learn how to handle frustration, disappointment, success and failure. We need to know how to motivate ourselves and others. These emotional factors are going to play into our ability to succeed and make great decisions 80% of the time.

Whether you did well in school or not, you can succeed. In fact, Coleman explains with repeated studies that academic intelligence and academic success offers virtually no preparation for the turmoil or opportunity that you’ll experience in real life. Being ‘book smart’ doesn’t translate into success. It’s why you often hear about the A student reporting to the high school drop out that started the multi-million dollar company. It’s also why you’ve probably been stunned to witness someone who is very smart by the traditional intellectual definition of the word make really dumb decisions that ruin his or her life.

So what does this mean for you as a real estate investor? First, you certainly don’t need an MBA to succeed as an investor. If anything, I can argue the MBA is a detour to your success as a real estate investor not a shortcut, but that is a discussion for another day.

Second, you don’t need to ditch your emotions. In fact, each feeling you experience has value and should be paid attention to.

I dedicated an entire chapter in More than Cashflow to the unique ability of women in real estate when they tap into their emotions and use them in investing (and men, you have this ability too!). Emotions are very useful in real estate. They will make you a smart investor if you know how to use them. So how do you do that?

Here are 5 ways to use emotions to make you the smartest real estate investor you know:

#1 Get to know yourself.

Self awareness is critical to success. When you know what you feel and why, you are going to be able to quickly identify when you’re overreacting. You’ll also be able to see when a fear might be irrational. For example, many new investors will panic to fill a vacant property. The fear of not having rent coming in can be overwhelming. That feeling can lead you to choose the wrong tenant (as we did once with the now infamous knife wielding tenant). The more you get to know yourself and what causes you to react, the easier it is to reduce the impact of an emotional surge on your business.

#2 Use your emotions to fuel you forward.

How bad do you want what you’re working towards? You have to create a vision that is compelling and that takes emotional connection to you goal. Mark Murphy wrote a great book on getting jazzed up to make big things happen called Hard Goals: The Science of Extraordinary Achievement. He says you have to get emotionally connected to your goals so that your goal is something you’re going to do instead of something you feel you have to do.

It’s not easy to get really charged up about making $10,000 a month. Yes, it sounds good, but when you have to squeeze the work in at 9pm at night when you’d rather be catching up on the last season of the Game of Thrones, that $10,000 won’t motivate you as much as you need it to. It is, however, much easier to get charged up thinking about being there for your kids – being able to take them to school, watch them play soccer, and not be tired and stressed at night when they need help with their science project. Getting emotionally connected drives you to get to completion.  Almost everything you want in your life is going to take work, effort and sacrifice.

Kevin Hogan put this beautifully in this week’s Coffee with Kevin Hogan “Working toward and achieving your ambitions is one of the best ways you can lead a more fulfilling life. The problem is that most people want to FEEL HAPPY WHILE they perform actions that will cause them to achieve and accomplish. And this where people quit.

Effort is “hard” by nature and happiness “feels good,” and people don’t know that effort precedes lasting happiness.”

So get emotional about what you want to do, work hard and drive yourself to complete it.

#3 Relate better to others.

Empathy is a business builder. Being able to see and feel things from someone else’s perspective will make it easier to grow your business. If you’re negotiating with a seller, a hard nosed approach won’t work as well as putting yourself in their shoes and finding a solution to their biggest challenges. If you’re raising money and someone says “I just need to think about it”, the faster you can connect to what they are actually feeling, the quicker you can understand what the real issue is. You will be a better real estate investor when you’re in touch with your emotions so that you can connect to how others must be feeling. Not sure what you can do to be more empathetic? Start by focusing on great listening. Really hear what other people are saying (and not saying) is a great first step to developing empathy.

#4 Kick the moody moments to the curb and get on with the pressing matters.

We all have bad days. We all face challenges. I could list about half a dozen challenges I’m facing right now. Sometimes I feel overwhelmed, but most of the time I kick that feeling to the side because I don’t have time for it. In order to accomplish big things I can’t spend too much time on a high or on a low. I have a zone where I perform best – you do too. Try to stay in that zone as much as possible. You can’t manage time, but you can manage energy. This is the critical component to energy management and making great decisions.

Tony Schwartz wrote about managing your energy to create massive success in his book, Be Excellent at Anything. Besides the fact that you need to make wise choices around how much sleep you’re getting, what and when you’re eating, and how active you are, he says that the key to being in your highest productive zone is to first be aware of what you’re feeling. The more aware of your feelings you are, the more power you have to influence them.

#5 Delay gratification.

Quick wins will give you a jolt – an emotional high – but ultimately making a choice to get a quick win will rarely result in sustainable happiness or success. In the past I’ve referred to this as ‘eating your babies‘. Be aware of when you’re choosing quick wins over the longer term gains to be made. People who can delay gratification are more successful. Coleman says that impulse control is essential to success, and the foundation of self regulation: “the ability to deny impulse in the service of a goal, whether it be building a business, solving an algebraic equation, or pursuing the Stanley Cup” (p.83, Emotional Intelligence)

The smartest real estate investors are in touch with their emotions. They recognize that when the emotions run too high or too low, you can’t make clear judgements. A smart investor will also realize that emotion plays a critical role in making deals, raising money and running a business – but that understanding what causes your emotions and what you’re feeling is the only way to effectively be an emotional and intelligent investor.

In case you don’t know the value of emotions in personal interactions I thought I’d share a great clip from Big Bang Theory with Sheldon demonstrating how not to show empathy:

If this video doesn’t play you can copy and paste this link into your web browser: https://www.youtube.com/watch?v=7U3S43O1Sqs






Words with Magical Persuasion Powers

Words with Magical Persuasion PowersI’m about to ruin the good thing I’ve got going with my husband Dave. Yes, all in the name of sharing and helping you, I am going to burst the blissful bubble Dave is living in.

I’ve got him under a spell. I’ve been using magical words on him for weeks and it’s been amazingly effective. Take this for example:
Before you do the dishes, let’s take Bram for a swim.
Like magic, he does the dishes when we return.
It’s probably your ability to be so flexible that allows you to make the best of any situation.
Like magic, what would have been an ugly scene turns into something we laugh about.
These are phrases with magical powers.
These phrases can be used in just about any situation where you want someone else to do something, but you don’t want to demand it of them. In other words: where you want to covertly convince them to do what you want.
Of course, you’re going to use these magical words for good not evil– which is why I can comfortably share them. I know that you’d never try to convince somebody to do something that is NOT in their best interests.
I don’t really understand WHY they work … but they work more than they don’t. I’ve been testing them after spending quite a bit of time reading and handful of books on persuasion. The most useful book I’ve read on this subject lately is ‘Covert Persuasion’ by Kevin Hogan and James Speakman and I owe them credit for most of these phrases. 
So … here’s five magical phrases put into a real estate context to help you see how you’ll use them:
  1. You don’t have to decide now” <to a tenant considering renting from you – something about this phrase actually makes them want to decide now>
  2. What is it that helps you know whether you want to invest in real estate now or wait awhile?”<to a prospective joint venture partner to understand their decision strategy and learn more about how you can help them with your deal>
  3. If you could have the perfect investment deal, what would it be like?”<to a prospective investor – equity or debt – to give you a clear picture of what they want AND to get them thinking and imagining about what they are looking for>
  4. I don’t know if signing the lease now is what you want to do” <again, to a tenant who is waffling on signing the lease>
  5. Why is it that some people can easily see a good deal while it eludes others?”<you could say this to a seller or buyer or potential investor>

Of course, there’s a whole lot more to this than just the words you use. You have to be congruent with them (your body and tone have to match the words) and you have to use them in the right situations … but test them out. Maybe you’ll find your children picking up their toys or your spouse buying fewer shoes or taking out the trash without an argument. Or, just maybe, you’ll find some words that make real estate investing just a little bit easier! Whatever you do, I hope you benefit from this because I’ve ruined the magical powers I have on Dave just for you. 🙂

CREDIT for these phrases goes to the book Covert Persuasion by Kevin Hogan & James Speakman. If you want to learn more about HOW to use these phrases and dozens of other covert persuasion techniques pick up a copy of this great book. 

Published September 13, 2011

Emotions and Real Estate Decisions

made an offer on the house who will water my flowersReal Estate Millionaire students, we’ll call them Sherry and Curtis, are making great progress with the course. When we had a coaching call with them, they were all fired up to turn their home into a rental property and buy a new place with a basement suite. The strategy (turning your home into a rental property when you move to a new place) can often be a very good one.

We were excited for them, but when we spoke to them, we were a little concerned that they were getting too emotional about things. Sherry was afraid of turning her home into a rental property. She had put a lot of time and effort into creating a beautiful and comfortable home over the years and was really worried it would deteriorate without her. Who will water the flowers she asked? Curtis was excited to get into the real estate investing game and couldn’t wait to move into a home with a yard.

They were planning to meet with a realtor the next day to get an idea of what their current home was worth, and then they were going to look at some listed properties in the potential new area on the weekend.

When we hung up the phone with them we sent a follow up email with some pieces of advice … the biggest point from Julie was:

Take a deep breath – I sense a lot of emotions (fear, excitement, nervousness) and that is NOT GOOD. Emotions are bad when it comes to investments. DO NOT LIST YOUR HOUSE IN A PANIC. DO NOT BUY A NEW HOUSE BECAUSE IT LOOKS GOOD. DO NOT DO ANYTHING THIS WEEKEND. Give yourselves time to think in a relaxed state. There is no urgency to your situation and that gives you power (and control). You always want to have power when it comes to real estate.”

That was Friday. Sunday morning we received an email saying “Don’t be mad, but we just put in an offer on a house“.

We are not about to get mad. We want our students to take action – and there is NOTHING WRONG WITH MAKING OFFERS. And, as long as you make them “subject to” an inspection or financing, it gives yourself a way to back out if your research turns up areas of concern. However, when you do make an offer, especially in this buyer’s market, make sure you keep control of the situation.

In our students case, we think they lost control for the following reasons:

  • They’d only looked at a handful of homes in this area (which is pretty light market research),
  • They were still very emotional about everything,
  • The realtor had only given them 4 business days to remove their subject to inspection clause,
  • Closing was only 30 days later (when they’d specficially stated they needed time to sort out whether they were in fact going to turn their home into a rental or sell it),
  • And, the realtor coached them to go in with a strong price to show they were serious. They only offered about 4% less than asking!

The good news was that the realtor had been unable to present the offer to the sellers, so there was still time to change the offer. We suggested that they contact their realtor and find out why, in a buyers market without competing bids on this property, she was pushing them to be so aggressive. And, we also suggested STRONGLY that they change their offer before it was presented so that they had a lot more time to conduct their due dilligence and ensure they were comfortable with their decisions (of buying, of renting or selling their place, etc.).

They ended up pulling their offer … and guess what … 3 weeks later the house is still on the market. If they want to, they can now go back in, more relaxed, offer a lower price, give themselves more time for the details, and get a much better deal. But that is because they’ve now had 3 weeks to slow down, take the emotion out, revisit their goals, and look at more properties. They still like this one … but they know that there are other potential deals out there now too.

The 3 Biggest Lessons to Learn from their experience are:

  1. SHOP AROUND! Be patient as you look for the deal that is right for you. When you find the perfect place – act quickly and decisively, but be sure it’s the right deal. This house may be a great deal but the only way they can know that with certainty is to look at a lot of other houses in that area. This means looking at 20 – 50+ online listings, viewing dozens of houses through open houses or appointments, and becoming an area expert.
  2. Always remember the motivations behind the people you’re working with. NOBODY will love your money as much as you do. Realtors get paid when the deal is done. That doesn’t make them bad people but it does mean that some realtors will push for terms and conditions that get the deal done … not necessarily that get YOU the absolute best deal for you. Great realtors know the market inside and out, understand deal making, and are able to work hard to find you the deals that meet your goals. Not every realtor is created equal. There’s nothing wrong with parting ways with your realtor if it’s not working out – just be honest and up front about it.
  3. You must take fear, excitement and any other emotion out of the equation. If you are emotional then you will not make good decisions. Things can go wrong, and little things probably will go wrong. That is just life …  if you’ve been following our renovation adventures on our blog, we’ve had plenty of little set backs. It’s cost us more money than we expected and added a week to the project but we never once thought “we never should have done this”. Think about what could wrong, and then think about what you would do if that actually happens. Write it down so that you can actually see your fears in front of you. Most of the time the fear is irrational, unlikely or manageable. (That said, next week we’ll share a response we had to a reader about the risks in real estate, and when to know when the risk is too great to proceed). If you are too excited, then just take a step back. Don’t do anything for 24 hours and then see how you feel.

We’re really proud of Sherry and Curtis – they are making fabulous progress towards their goals. And they are incredibly smart and hard working people. They are taking time to educate themselves and they are reaching out for help to avoid the pitfalls that often trap new investors. They will be successful in their real estate ventures and in their life.

We don’t think they were making a life destroying mistake with the deal they were creating, but we do believe that they weren’t getting the best deal they could– especially in the buyer’s market we’re in right now. We knew they were emotional about the whole thing, so we know they didn’t think it through. It can happen to ALL OF US (believe us, we know)!

Some Words of Wisdom:

  • Those who have never made a mistake are doomed to work for those who have.” – unknown
  • The reason you are in negotiations are to do better than your alternatives.” –Keith J. Cunningham
  • Aim for success, not perfection. Never give up your right to be wrong, because then you will lose the ability to learn new things and move forward with your life.” – Dr. David M. Burns
  • Have a bias toward action — let’s see something happen now. You can break that big plan into small steps and take the first step right away.” – Indira Gandhi

Posted on June 6th, 2009

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