Overcoming your Fear of Investing in Real Estate

Investing of all types is based on a risk-reward analysis. For generations, those that are the most risk adverse have sought out government employment with the hope of having employment security and a guaranteed retirement pension (not so much anymore). Others are willing to take a little more risk trying to climb the corporate ladder. These people are also hoping for job security and a retirement pension (much less likely today) along with a little more reward. That works for many people but it leaves your work happiness and financial security at the mercy of a “boss”.

By overcoming the fear of real estate investing, you take full charge of your professional life, financial security, and ultimately your life! Still, there are more layers to the risk you need to take and the reward you’ll achieve. Many beginners keep their day job until feeling confident they will succeed as a real estate investor.

Or you can try other investments such as Wall Street, gold, or a simple savings account but you’ll still be at the mercy of others. On Wall Street, Greed is Good – yeah for inside traders and those able to manipulate the markets. Gold is the world currency and subject to global fluctuations. Savings accounts – forget it – these don’t even keep up with inflation.

Overcome Fears of Investing in Real Estate With Education

One proven and repeatable path to success and overcoming the fear of real estate investing that I’ve often seen starts by learning about the subject. That is exactly the reason that I write about and teach the subject. One of the great things about real estate investing is the property often pays for itself. Typically, you put a little of your own money in, finance the property using other peoples' money, and either the rent or the rehab pays for the investment plus a good profit. Plus you own the appreciation in value.

Occasionally, I come across people that can't overcome the fear of investing in real estate because it comes down to other people in their lives. These are people that fear others will see them as a failure if a deal goes bad. Again, this is mostly about gaining some education from an experienced investor. That knowledge and oversight will almost certainly enable you to avoid making an investing mistake.

If you do want to invest but are having trouble overcoming the fear, my suggestion is that you sit down with your spouse to have an open conversation. Not necessarily about your fear but rather about the financial opportunities that investing offers. Also, about what you and he/she think the best opportunities are today. There are plenty of them. Then further educate yourself to help overcome the fear of real estate investing.

Understanding the Numbers is Another Way of Overcoming the Fear of Real Estate Investing

Clearly, the goal of real estate investing is earning a substantial profit. Overcoming the fear of real estate investing means knowing the numbers before investing. Begin by obtaining at least 12 months of expenses from the current owner. But don't take these at face value. Study them yourself to make sure the numbers make sense. If this is income property for the current owner, you can ask to see the IRS income tax paperwork, which is where the most accurate expenses are going to be shown because the owner was able to right them off from income. This is likely to be the most precise financial history of the property.

Once you are comfortable with the current owner’s numbers, overcoming the fear of real estate investing means plugging in your own numbers. Obviously, you are seeking to make a profit so make sure you accurately include all of your numbers. The previous owner's numbers do not fully apply to your situation. Your loan amount, interest rate, and other factors will differ from the current owner. It's essential you run all of the numbers using your own circumstances. That should give you confidence before investing.

Next (or first), take a close look at the local market you are buying into. Are the rental rates and purchase price reasonable compared to other properties in the local market? If you're getting into the rental business, make sure you understand the local vacancy rate. At some point, you will almost certainly have a vacancy. You want to establish a reserve fund from your monthly cash flow to cover temporary vacancies and emergency repairs.

Understanding all of the numbers will go a long way in overcoming the fear of real estate investing but there is more you can do.

Overcoming the Fear of Real Estate Investing by Getting Expert Advice

If you are a novice, a lack of experience is a big hurdle to overcoming the fear of real estate investing. The good news is there are a lot of resources out there to help you. I personally have published multiple books and videos to help people get started in real estate. Another easily available resource is a local real estate agent that can help you understand the local market.

Overcoming the fear of real estate investing involves you putting together a plan, attending seminars, and using knowledge from other resources. Then have an expert or two review your plan and make suggestions. Next, find a few potential investment properties.

Run the numbers for each property and have an expert look at what you came up with. There isn't much more to overcoming investing in real estate.

By Wendy Patton