Real estate investing takes time to learn, but many people don’t ever invest due to analysis paralysis. It is okay to take time to create a strategy, save money and find properties, but once you are ready you need to pull the trigger. I flip homes and own 11 rental properties; it was hard for me to pull the trigger in the beginning. Once you buy the first house it all gets much easier. How can you overcome fear and analysis paralysis?
What is analysis paralysis in real estate?
Analysis paralysis is when a real estate investor or an aspiring real estate investor cannot buy a house, because they over-analyze everything. They run the numbers over and over until they convince themselves the property is a bad deal or someone else buys the property before they make a decision. I like math and I love figuring the returns I make on my rental properties, but I make decisions very quickly. Once I see a house that is a great deal and meets my criteria I make an offer in less than an hour.
How long does it take to buy an investment property?
Analysis paralysis does no apply to people just learning to invest. It takes time to buy rentals or flips and you should not rush into the process. It can take years to save money and come up with a great plan to be successful in real estate. Analysis paralysis takes over when you are ready to invest, you have a strategy and the money, but you can’t pull the trigger. If you are just beginning to learn about investing, don’t worry about having to buy a home right away. Analysis paralysis is a problem when you know exactly what you want to buy, but can’t make yourself do it.
Why is it important to overcome analysis paralysis?
It may not seem like a bad thing to wait to buy real estate, but the sooner you invest the better off you will be. I wrote an article on why it is better to invest in rentals when you are young here. It is easier to invest when you have less responsibilities and more flexibility to buy rentals. You have more time and it is easier to use owner occupant loans to buy rental properties when you are younger.
Not only is it easier to invest when you are younger, but the longer you own rental properties the more money you will make. Rents will increase, mortgages will be paid off and values will increase the longer you own rentals.
How do you overcome analysis paralysis?
Analysis paralysis is caused by fear. Fear of failing, fear of losing money and fear of making a mistake. Many people live their lives through fear, but people should not fear failing. I think it is much worse to have never tried and not known if you could succeed than to try something and not succeed. There are a few things you can do to convince yourself to overcome your fears and analysis paralysis.
What is the worst thing that could happen?
One thing I always consider when making a big decision about life or real estate is “what is the worst thing that could happen if I do this?” In most cases we believe things will be much worse in our heads than they will be in reality. Actually, in most cases we don’t even think clearly about what will happen if things go wrong, we just don’t want to fail.
In almost every instance of the worst case scenario, you will lose some money or time of things go wrong. Losing money is not a horrible thing, because If you made money to invest once, you can do it again. If you write a contract on a house and you end up not buying the house you will probably only lose your earnest money if that. If you end up buying the house and you have to sell or something goes wrong, you won’t lose the entire cost of the house. You might lose your entire investment, but chances are you won’t lose anything if you did your homework and got a good deal.
What happens if you make mistakes and lose time?
When you lose time from mistakes or bad situations are you missing out on that much? For one thing if you are stuck in analysis paralysis you are gaining nothing by doing nothing and losing time anyway. When you take action and make mistakes you are learning. Every mistake is a chance to learn and a chance to make more money in the future. You aren’t losing time when you make mistakes, you are gaining experience and learning.
Why you never fail with the right attitude
People like to use the word failure all the time. I think fail is a horrible word to use, because it means you gave up. No one fails if they don’t stop trying. Many of the most successful people in the world made many mistakes, but they never gave up. They did not listen to the people who told them they could not succeed, they worked to prove those people wrong. In fact, I would bet the most successful people make more mistakes than unsuccessful people. The successful are willing to take chances, to take risks and that is how they made it big.
To overcome analysis paralysis give yourself strict guidelines for buying
If you still cannot make yourself buy a property follow these steps:
- Write out the perfect property investment. How much cash flow or profit it would make you, how much it would cost, how much cash you would have to put into it and where it is located.
- Now write out specifics on the type of deal you are looking for. The price, the neighborhood, the condition and the most you would pay for the property based on the amount of repairs needed.
- If you see a good deal come up for sale, buy it if it meets your guidelines you created. You have already figured it is a good deal and will make you money. You don’t have to do anymore thinking, buy the house.
Buying real estate is a big deal and it is an awesome investment if you do your homework and buy right. Once you have figured you want to be a real estate investor and you have the means to make it happen, don’t let analysis paralysis hold you back. A great deal that you buy is much better than the perfect deal that you will never find.