Real Estate Investing Skills: Dealing with Disappointment

Posted by Chris Clothier on Tue, Aug 27, 2013

dealing with disappointmentDisappointment. It's a fact of life. It's not a particularly enjoyable fact of life, but neither is getting your order wrong at a fast-food drive-through or people who don't use their blinkers. And what do we do in those situations? Well, we may complain, fume, or vent with some colorful metaphors, but eventually we deal with them and move on.  They are rarely life threatening and we tend to get over them fairly quickly.  If you are like me, your kids will be there to remind you in the future of how you deal with them!

Of course, when you're talking about deals in which tens of thousands -- or even hundreds of thousands -- of dollars are at risk, a negative result can be a bit more difficult to handle than an inconsiderate driver or the drive through attendant getting your order wrong.  Those situations pale in comparison with the real and sometimes lifestyle threatening disappointments that can come with real estate investing.

Seeing as how I have been investing in Memphis real estate for over 10 years now and have also invested in out-of-area markets like Florida and Colorado, I have had ample opportunity to be disappointed.  I have both made money on real estate investments and lost money on real estate investments.  I have made good decisions and bad decisions and have made both good and bad adjustments to my investment strategy following disappointment.  I feel that puts me in pretty good position to give some advice.  As small as these suggestions are, they will help you deal with the ups and downs that you are sure to encounter if you invest in real estate for any period of time. 

Honestly Evaluate the Seriousness of the Situation

Let's say you have your eye on five different properties. There's one of them that stands out above the others, though, and guess what? You just missed your chance. Another investor made his move right before you did, and that's that.

It's completely understandable that you're bummed out. But in the grand scheme of things, how important is it? Assuming you're making prudent decisions, you expect to have a long, successful career in real estate investing. This means you're going to see a lot of properties. You're going to make a lot of deals and, conversely, you're going to miss out on a lot of deals. When you land one you want, be thankful, and when one falls through, just remember: There's another deal right around the corner. 

We work with investors daily who are disappointed when a property that appears to be perfect fit for their portfolio is purchased by another investor.  Patience is a learned art and one that the best real estate investors in the world have mastered.  There are infinitely more real estate deals available than an investor can purchase.  As a company, we miss deals every day.  Sometimes we will miss deals by only a few hundred dollars and those losses could sting and disappoint.  But, we do not let them.  We continue to move forward patiently working on other deals until the ones we really want for our investors come to fruition.  

Don't Let Negative Results Make You Second-Guess a Good Game Plan

Let's say you've been in the real estate investing game for a while. You've worked hard to develop solid investing strategies. You've found a level of risk that's acceptable to you. You've come up with good guidelines for vetting your renters. Maybe you've hired a great property management company or found a company like us to handle everything for you.  Overall, you're happy with your results, the choices you've made and by any measure you are successful.

But then... something bad happens. Maybe a property ends up not appreciating like you thought it would. Maybe, despite your best efforts, a rental sits unoccupied for far longer than you thought it would. Maybe a tenant trashes one of your rentals. It could be any number of things; the point is that it's not good. And part of dealing with disappointment in these situations is asking yourself the question that so many people do when something goes south: Where did I go wrong?

It's not a bad question. It's good to constantly re-evaluate your approach to investing. That said, don't buy into the fallacy that one bad result is cause in and of itself to revamp your game plan.

Take a page from the professional poker players' handbook on this. A good poker player knows that she can play a session perfectly, read the other players perfectly, and still come out a loser on any given day, due to the level of uncertainty inherent in the game. But she won't let it shake a good strategy, because she knows that in the long run, it will pay off.

If a poker player wins 70% of the time, that means 30% of the time, he's going to lose. If there's an 80% chance of no rain, that means 20% of the time in that situation, it is likely to rain. Take the long view and have confidence in a good strategy to ride out the inevitable negative results that happen due to circumstances that are beyond your control.

Real Estate Investing Pays Over The Long-Haul

I am not going to sit here and spout out results and data that shows how many millionaires are created through real estate or graphs on compounding interest and the time value of money.  Those are all tools used by economists and even investors smarter than me.  Instead, I will tell you that i am a firm believer that real estate that is purchased with a smart, consistent plan can absolutely change the way a person retires.  It can change the footprint a person leaves for the legacy of their family and it can provide a level of comfort for college planning, gift giving and retirement.

It will have ups and downs and there will be challenges.  But if an investor can understand that disappointment will come and it will soon be replaced, then the opportunity for allowing real estate investing to be a powerful wealth builder exists!

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Image credit: Erich Ferdinand

Topics: real estate investing, Memphis real estate, dealing with disappointment