How much are ego and emotions involved in your your STR purchase?

Question

I visited with someone yesterday about a terrific property in terms of ROI.  The buyer lives in upstate NY and is looking for something in the Smokies.  But the buyer said "that home just doesn't appeal to me...it's too rustic."  This is despite really good rental numbers.  I asked the buyer how often they, themselves would be coming to stay at the cabin, and she said "Never.  It's too far away.  It's just an investment."

What I determined is that the buyer is making an emotional decision, rather than a business one.  As I thought back, I have seen this scenario in many ways over the years:  People making business decisions, relying on emotions and ego.   I discuss that more here:

https://www.biggerpockets.com/...

My question for you guys is, how much do you care about what others think of your investment? Is it like the watch you wear, the car you drive, or the club you are a member of? Do you make decisions based on your personal taste, or on what "works" the best financially? Of course, no one is going to admit to making emotional decisions, but I thought it would be an interesting discussion.

Leslie Anne Morris · Answer

I don’t give a sh*t what others think about my investments. But with that being said I see this investor you spoke with. Many of my buyers make emotional based decisions when investing and that’s totally ok. They just need to own up to it. Realize why you are making decisions and underwrite the deals accordingly.

Michael Baum · Answer

So after giving it some thought, I think I still will use some emotion. Now that we have been building up our lakehouse reputation, I know a lot more about what it takes to create a successful rental. Our strategy focuses on families visiting. That is what we do and are emotional invested in doing for ourselves. What works well for us as an extended family visiting will work just as well for other extended families.

So I guess it all depends on what you are looking for.

John Carbone · Answer

The majority of people want to buy something where they would like to visit personally even if they have no intention of doing so, or doing so very little. If someone is buying just one rental as a second home to use as a short term rental, then I think they are more inclined to want to have a “flashy” property. This makes them “feel good” about their investment even if it’s a horrible investment. Buying a “normal” rental has perceived more risk because they think it may not be as desirable. They want to be able to tell friends and co-workers that they have a second home in “x” and they want it to be a high end property with a town people will know about. The reality is these other people they tell really don’t care, sort of like a few weeks after the super bowl nobody cares who won it. But, as is life, people will think that other people care about their life and assets, which creates opportunities in “undesirable” areas for actual investors. It honestly reminds me a lot of when people were buying the overpriced “blue chip” stocks in 2000 and 2008….the thinking was well if I lose money this is what all the “smart” people did so it is more justifiable to them when they get caught holding the bag. They can “feel better” about their loses because “everyone else” also lost. It was also a conversation piece at business events to “talk about your holdings”, and if it wasn’t a known blue chip stock, well that just wasn’t “cool”. Case in point with Gatlinburg, people want the gatlinburg address and they will overpay substantially for that the same way that people overpay for designer clothes with 1000 percent markup. There’s no amount of math or reasoning with these people (which is the majority of the population), they are driven by emotions even if they say they aren’t.

Mark Cruse · Answer

Please dont crucify me but in my experiences, with the people I have mentored who act this way were 100 percent women. No, not all of them did it. In fact, most did not. However, whenever it did occur it was a female investor. I had to explain to them that investing is not based on personal taste (in most cases). I had to explain because they didnt like it, it doesnt mean that others will not. I explained that basing stuff on emotion can cost you to spend tens of thousands of unnecessary needless, over renovating costs. Others have said thins like they wanted to acquire rentals and attract tenants that are just like them. I explain over and over that there are too many dynamics and scenarios to cause your investment to go south with this line of thinking. I have even provided real world examples. Just not a good mix for business.

Kenneth Rolfe · Answer

Great question!  I think it can be challenging to leave the emotion out, especially early on in your investing journey.  You almost have to train yourself in this regard in my opinion, but this can be done.  Ultimately you have to ask yourself what your goals are and then do you best to align to those goals.

We just bought a STR a couple months ago.  The numbers made sense and we were excited.  The hesitation is that the house we were buying wasn’t something we would want to stay in.  But we moved forward because we trusted the numbers.  The property is OOS and when we flew out to close on the house and set it up (seeing it in person for the first time) we were nervous.  First night we stayed in the house and we were uncomfortable being there… by the end of the week we didn’t want to leave.

Emotions are real, they will likely show up in the process.  It’s all about how we respond when they do.

John Underwood · Answer

I want to buy investment properties that appeal to the masses.

Michael Baum · Answer

Hey @Collin H. very interesting question. In our case there was emotion involved. I grew up in north Idaho and always wanted a place on Lake Coeur d'Alene. Everything finally came together in 2017. We did look in other areas and that was before I found Biggerpockets. Initially we were just going to use it ourselves, but then I started reading everything on STR's and voila! we have a very successful lake house rental.

At the time, we just wanted a place for ourselves and family to hang out a few weeks a year. Making memories was important. Swimming with grandkids, boating etc. An investment provides for our retirement. Now we get to do both!

My wife did tell me I go over there too often to check on the property in the winter. She is probably right. I love it over there. That is emotion 100%.

Now we are starting to look for our second place. My wife is a bit hesitant as she knows I am more emotion driven sometimes, but this one will be 100% for investment so it will be all about the numbers, what we can afford etc.

I guess when I read your story I supposed it could be around what they feel will do better. Maybe they thought if they think it is too rustic for them,  then others will too and it won't rent as well.

Bruce Woodruff · Answer

Really not at all. I just want a property that makes good money....

Carlos Ptriawan · Answer

I don't know but in term of real estate, I generally have zero emotion/ego either for STR/LTR/primary residence. I don't even care that much about the neighborhood. As long as the price is good, the school district is good, I buy for primary but I bought in not so good environment too because at that time, that's what I can afford. For STR I am only buying a condo because I prefer Tidepool-front-view lol and the price is awesome. Only condo can provide that.For me STR is about surronding amazing natural landscape and not about the place itself. If I care too much about the house itself just stay at home.

Collin Hays · Answer

Those are some really good points.  You have specific parameters and I think that it is good that we all establish those. You have found a formula that works, within those parameters.  You also have some very specific guidelines regarding "the fine print", which is unusual.  Thank you for sharing!

How much are ego and emotions involved in your your STR purchase?

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