How do I overcome my fear?

Question

Hello all, my name is Jerrud I am 35yrs old and I currently work full-time for a large Pharmaceutical company as an Associate in Third Party Manufacturing Quality in Saint Joseph Missouri population of  80,000 people. I am married with two kids one is 7 yr old and the other is 7 mo old and my wife works full-time as well as a commercial loan assistant we both don't make a huge amount of money and our debt is not that great but I think could be worse. I have always been an entrepreneur at heart for as long as I can remember when I was a kid back in the 90's I did as a lot of kids probably did and went door to door asking people if I could push mow their yard for a price. Hindsight 20/20 I should have stuck with that because you cant drive down the road without seeing 10 lawn truck services. After that (still in the 90's) my family had a tree in our yard that yielded mistletoe each year and around Christmas, I would climb up the tree, cut it down and go door to door selling it. After that, I bought some address stencils set as well as some reflection spray paint and went door to door selling my services of painting house numbers on the curb. Fast forward, a little older, my father owned his own drywall company and taught me the trade of hanging and finishing drywall and I currently do that as a side hustle. That is pretty much my life until present summed up.

Now, I want to start investing in Real Estate applying the BRRRR strategy here in my hometown and the surrounding areas as I believe it will work rather well here. My goal is to build long-term passive income as well as give me financial freedom and free me from my W-2 job. I want to leave behind a legacy for my two kids when I am gone and god willing for their kids. As I am a handyman, I plan to self-manage my property/properties until I get big enough and I can hire a property management company. One of my hundred questions and really, for me, one of the more important question is.... how do I overcome my fear of not being successful, in a little more detail, how do I overcome my fear of being afraid I won't be able to rent the property out once I have completed the deal and rehabbed it?

If there are any meetup around the Saint Joseph, Kansas City MO area I would like to come and pick some veterans brains maybe to help build my confidence. I know there are a lot of details missing in this post. I can provide answers for any questions some might have. As I am new I still have a lot of questions myself.

Thanks for reading, please provide feedback.

best regards,

Jerrud

Steve DellaPelle · Answer

@Jerrud King I was in the same boat as you...scared to take the leap because of the 100,000 "what ifs". I am only 24 years old and I had 0 experience in REI. After doing my homework and finding what I thought to be a good deal, I decided to pursue it. I learned so many things along the way and I have met so many different connections that only added to my knowledge. I am finishing up on renovations (I'm still so new to this and still learning the basics) and I am having an open house for one of my units this weekend.

My Craiglist, Zillow, Trulia, etc. postings have generated over 25 responses and I am seeing no trouble getting it rented out.

Just do your homework and stay focused. Don't be afraid because of the "what ifs".

Tyler Mullen · Answer

Overcome your fear by being honest with yourself, set a straight forward & realistic goal... then work backwards from that goal, as @Jd Martin said.

You could likely draw some strength from ideas in a few general business books also, look into The One Thing and Start with Why come to mind.  Remember, that fear you feel is the caveman part of your brain screaming, "don't go out there, it's uncertain and dangerous!"  You're only feeling that because your logical brain tipped it's hand and said to your caveman brain, "I dunno, this looks scary.  We've never done this before."

Don't surrender to the fear.  Gather info, gather resources, make a plan, act, then adjust when roadblocks are encountered.

Now, go kill it!

JD Martin · Answer

Work out your worst-case dollar scenario and work backwards from there to mitigate the risks. Example: You buy a $100k house with $20k down and a mortgage of $600 (taxes+principal+interest+insurance). Your worst-case scenario, assuming all the systems in the house are good and/or repaired, if the house stays vacant for a year, looks something like this: you have to come up with $600 every month to keep the property and some basic utilities to keep the pipes from freezing and the house from getting moldy. Let's call that $100/month. So your worst-case annual scenario here looks like $8400. Do you have $8400 that can carry this house for a year, or can access credit to pay this for a year? If the answer is no, then you are probably unprepared for real estate investing. If the answer is yes, go to the next worst-case scenario. Maybe the next one is that you get a tenant in there that does damage up to your insurance deductible and it takes you 6 months to get them evicted. If that number is lower than $8400, well there's your answer. Maybe your next worst-case scenario is that you can't find anyone to rent it for 6 months and you have to sell at a loss. How much loss? Can you access those funds? ETC.

Of course, you're not going to buy any old house based on this number. You're going to buy a house that makes money from the start once it has tenants in it (cash flow). But this gives you some catastrophic point of view to put your fears into perspective. On low-end houses, most of the time your maximum exposure is really going to be some percentage of what you paid for the house, meaning that if it burned to the ground and you weren't made whole, there would only be some shortfall since you still have land that can be sold and you get some insurance proceeds, or if you had to short-sale it you're only coming up with $X out of your pocket. Figure out what $X is and if you can live with it should that happen. If you can, then all you're left with is finding the deal.

Chris Jensen · Answer

@Jerrud King, wow you sound so much like my wife and I when we were inching our way through our first deal. I really like the comment by @Rich Kniss, "One overcomes fear with knowledge." For us it was knowing the market (prices, rents, trends, etc), knowing (and trusting) the numbers, knowing your target renter (preferences, values, desires), knowing the processes (finding, buying, managing, etc.), knowing someone who's made it work, all these things gave us a lot of confidence. Then we just executed what we knew. Sure we learned along the way, but starting out with that knowledge was VERY empowering.

It's easy to talk about the psychology of fear, but those feelings are very real. If you're concerned that they may prevent you from doing anything at all, you might think about starting small... a condo or a little single family home, or maybe a duplex. Apply your knowledge and show yourself that you can be successful with that first property, and then do something bigger. Past success, in addition to knowledge, also overcomes fear and breeds confidence.

Best of luck, I'm rooting for you!

Terry Lao · Answer

@Jerrud King

Fear is a state of mind. Some say that real estate investing is like gambling as there is a risk reward element. Look at it from a gambling or numbers perspective. Never risk losing more than you can afford. Meaning, since you have a family, make sure your money goes to house and family support first. Any money left over is the money you risk. Now, you can put that money in the bank and get around 1%. If that return is not good enough for you, then real estate investment is a good option as there is risk, but it's calculated risk. Timing the market is hard to do. However, there are financial indicators that help get a view of the real estate market like, interest rates, job market, economy, median price of homes, home sales monthly and year over year. If all that I mentioned are positive factors, then you have at least short term positive outlook. Pick a market that is familiar and affordable. For me, it is Las Vegas, and btw I live in Southern California. The Las Vegas market is affordable to me, and darn cheap compare to Southern California. I look for cashflow, and run the number to assure a 10-15% ROI. I look at the economy, which is casinos and tourism for Las Vegas. Then there is X factors like NFL Raiders building $1.9B stadium and current NHL hockey team. In short term, 1-2, relatively good outlook.

Overcome you fear. If you can accept the worst case scenario, then the upside has more positive than negatives.

Terry

Effram Barrett · Answer

I would suggest reading "Think and Grow Rich" by Napoleon Hill. Your thoughts are very powerful, and if you think fear, then you will manifest negative results. Do your best to block out the fear and think positive, and you will manifest positive results. Seek more knowledge in real estate investing and you will learn how to make calculated risks. Your fear will eventually fade away

Gordon Cuffe · Answer

Ask yourself how you would feel when your an old man and you never invested in real estate. Would you regret never giving it a try?  I've had so called failures and challenges with real estate investing but I am still way better off with investing than with not investing at all. Homes always rent. The challenge is renting to the right tenants. When i did not screen my tenants extensivly is when I rented to dirtbags

Jerrud King · Answer

Jd Martin, Thank you for this insight, this helps a lot.

Kim Tucker · Answer

The largest meeting is in Overland Park on the 2nd Tuesday - details on the BP event calendar.

One of the best ways to overcome fear is education.  Learn how it works. learn the numbers, learn how to put together a contract.

Banks are not afraid to lend money because they have a formula

Borrower that has

1. Income or money

2.  History of employment

3.  Good credit showing they pay their bills and

4.  They only lend a percentage of the value of the home.

Investors have similar formulas, so they are protected if the deal goes south.  I have a deal we are working on now if the numbers work out the way we think, we make $30,000.  But if everything goes wrong, the worse thing that can happen is we break event, not a good outcome for a few months of work, but highly unlikely to just break even either as we have run the numbers and know they fit our profit formula.

Rich Kniss · Answer

@Jerrud King, I find one overcomes fear with knowledge, at least in my case. Read every book you can and listen to every podcast. There's plenty on the specifics of renting and managing properties.

On the question of being able to rent out the unit, make sure you've done your homework on what the typical rents are (Craig's List, Rentometer) and that any rehab reflects the comps.

I think BP'er @Jonathan Schneider has a group he set up that way. Might be close to you.

Good luck and jump in! I look forward to hearing your first success story.

Rich

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