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Confronting Your Fear of Real Estate Investing

Have you wanted to invest in real estate, only to find fear of the unknown getting in your way? For every person who has ever bought a rental property, I bet 50 people have wanted to, but have been to afraid too act. The fact is, if it weren’t for partnering with Mike, I never would have over come my fear and uncertainty of REI. So what are some of the common fears and how can you address them? Read on–

My Fears Then

REI can be very profitable for those willing to take the plunge. It’s that first dip into the pool, though, that can be the hardest. Here are some things that I was afraid of when I first began investing in real estate:

  • Paying too much for the property
  • Buying a property with hidden defects
  • Underestimating the costs of rehab
  • The rehab process
  • Not finding a good tenant and the right rent
  • Dealing with problem tenants and possible eviction
  • Taking out a large mortgage on the property
  • Liability if somebody got hurt on the property

That’s a lot of fear, and you may have others that I’ve missed. But that’s what I was afraid of when Mike and I bought our first rental property. Fortunately, there are some ways to address these fears.

What I did

  • Embrace your fears: Not all fear is bad. All investments have risk, and some of the fear is there to tell you to make sure you’ve thoroughly evaluated the investment you’re about to make. So don’t just sweep your fear under the rug. Recognize, identify and address it. Instead of being fearful of “paying too much”, I started to ask what I should pay for a property and how to deal with the possibility of being wrong. Instead of imagining “hidden defects”, I started learning about what can go wrong with a property and how much it costs to fix potential problems. By recognizing and identifying ambiguous fears, I started to think of solutions to potential problems.
  • Do your homework: Real estate is an active investment, which is part of the fun. Research the value of comparable homes to make sure you’re getting a good deal. Interview contractors and get multiple bids to ensure the best quality rehab at a reasonable cost. Understand the eviction process in your city or town in case you need to use it. The point is, knowledge reduces fear. Doing your homework and being prepared is a great way to address those nagging uncertainties. Does doing your homework take some effort? You bet. But the potential profits can be well worth it.
  • Find a “Mike”: Finding a knowledgeable investor or mentor is invaluable. Before Mike and I bought our first property, he had already bought and sold several properties (sometimes called “flipping” in the current parlance). Mike knew the tips and tricks to buying, rehabing, and selling. Even Mike had a “Mike”—his father, who has invested in real estate for decades. You can look for an investor that’s willing to show you the ropes. Local realtors and real estate investing groups are great places to meet those that can help you with your first property.
  • Recognize that you’ll make mistakes: Nobody’s perfect. Mike and I have made mistakes (mostly Mike), but fortunately, none of them has been major. But real estate investing is a learning process. What you learn from your first property you’ll use with your second property, and so on.
  • Take it slow: Rome wasn’t built in a day, and neither was a real estate empire. While we’re all anxious to grow our investments, a slow start will allow you to spend more time on each property and reduce the risk of a major, costly mistake.

My Fears Now

That’s the thing about fears. You can reject some, change others, and deal with them, but they’re always going to keep coming to some extent (kind of like Mike’s edits to my TWA posts). So with some experience under my belt, what are my fears today? Here are some:

  • Missing a good buying opportunity
  • Failing to maximize a property’s rental value
  • Over-improving a property
  • Rising interest rates

The list is a lot shorter and the fears are more about missed opportunities than they are about fear of the unknown. I guess they call that experience.

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