Home Loan Information Home Loan Information From A Former Industry Insider

Emotions and Sure Mistakes in Real Estate Investing

I have had literally hundreds, maybe thousands, of people through my seminars this year. I maintain contact with most of them through email, telephone or by them immediately becoming investment clients. After having witnessed the same cycles for several years now I’m ready to offer some seasoned commentary on what happens when you compare an emotional buyer to a prepared buyer.

The “prepared” investor has a tendency to make us, real estate service professionals, a little nuts at first but generally turn out to be the best long-term clients. They are often the ones who try to beat us to death on pricing and pick out brains in a method somewhat akin to a giant leach sucking on our brains! It’s worth the donation of time in most cases, however, so if you’re a professional hang in there. Be honest with them if they are eating up too much of your time in a random method and take control of when you’re available for them. Often they will want several minutes or hours of your time a few or several days each week.

The “emotional” investor leaves my seminar thinking they know everything they need to know to succeed. Sometimes they will join the weekly conference calls for a couple of weeks after the seminar and they may email a few times but that will be it. The next time I hear from them they’ve usually gone out one their own, without the assistance of a buyer’s agent, and located a property. Worse yet they’ve probably already made a bid and signed a contract! This really makes me want to wonder if they even paid attention in the seminar!

Can the “emotional” investor make a good deal? Yes, of course it’s possible. It’s also possible for a complete amateur archer to shoot an arrow at a target 50 yard away and hit the bull’s eye. Chances are, obviously, quite limited. Likewise the “prepared” investor can make a bad deal … overspend.

The emotional investor usually has big, fast dollar signs in their eyes thinking they’ll grab a couple of properties undervalue, put a little money into them and make fast cash. They don’t ever stop to question why they are able to get a particular property below value and what makes them think they can sell it for market value. This is not to imply that this doesn’t happen it’s simply that the emotional ones don’t take time to really look at the numbers.

The prepared investor, on the other hand, will drive you nuts with spread sheets and questions for the appraiser and about the taxes. They’ll want a property inspector and a general contractor in that house before they even make a bid! Likewise the prepared investor generally won’t be concerned with wall coverings and window dressings. They’ll more likely be looking for leaks, cracks and structural condition.

Where the two really separate is when closing time comes into play. The emotional investor generally will be doing a stated loan and the prepared investor will generally be full-doc. The emotional investor will freak out when the appraisal comes back lower than they dreamed it would and threaten to walk. The prepared investor will have all their documents neatly prepared and will generally have a better understanding of the business of real estate transactions than the emotional ones.

At the closing table the emotional investor will show one of two types of behaviors: sign everything without reading anything or read every word and ask a blue billion questions. Generally the prepared investor will scan every page, sign every line and ask only a few questions.

I’ve tried to construct a plan for creating prepared investors from emotional investors. Sometimes I’ve nearly succeeded. Still, it blows me away that these people will set through a 4 hour seminar or a 3 hour workshop, hear everything I say, take notes, do the booklet exercises and then the next thing I hear from them they’ve purchased a property on their own, used some other company for financing and are calling me to bail them out of the bad loan, the bad investment or just generally HELP!

Don’t think I don’t still appreciate and treasure emotional investors. They are good for my business, good for your business and eventually can learn to succeed. Until they learn, however, to take the emotional factor out of their transactions it’s a turkey shoot whether or not they will succeed.

Keep sending them to the seminars and workshops and I’ll keep sending back buyers with a little more exposure to the realities of investing than they had before they came.

Ken Cook – Nationwide Specialist – Information/Marketing – FHA Home Loans
678-439-8683