4 Lies that All Real Estate Investors Tell Themselves (And How to Stop It!)
Sep 05, 2022
As real estate investors, we often tell ourselves little white lies in order to make ourselves feel better about a bad situation. It's natural to want to put on a brave face and push through, but if we're not honest with ourselves, we'll never be able to improve and the worst may cause us to lose money in the long run.
LIE #1. The neighborhood isn't that bad.
I've called myself off doing this before too. You look at one property on one side of the street and you look at another property, two streets over, and that one is half price. And you almost think to yourself, you know, what, that's not that bad. The neighborhood's okay. It's up and coming. Right. Could be true, but more likely than not. There's a reason why there's such a pricing disparity. Make sure you look into it.
LIE #2. You tie up a property. You put together your construction budget or your rental budget, and numbers come up way higher than you ever possibly imagined and you start to tell yourself stories like, at some point, you can reduce this.
Maybe I don't need to do that. Maybe I can spend less here. And, you know, after a while, you start to tell yourself a convenient lie. Now if you step back and came into that transaction new at that point, there's no way you'd fudge yourself that way to think in terms of what your construction budget or renter budget is. But because you've been at it for so long, you start to believe the lie.
LIE #3. You look at the income statement of the property you're thinking of buying and you told yourself, oh, man, I can totally raise those rents.
Maybe you thought you can raise it to two hundred, three hundred, four hundred dollars a month. And then you start to look for other information that substantiates that. But deep down inside, you know that that is a pretty risky bet.
LIE #4 is the opposite of the income, the expenses. You look at the Pro-forma and you think to yourself that you could d totally cut expenses down on operations
You think that cutting expenses on some aspects of the business/construction will get you the outcome that you want. Which is definitely not the case. The true way to get this over with is to make sure to follow the budget you've strictly imposed and that the money should go on where it's supposed to go.
All four of these lies have one thing in common. They're there to try to convince yourself that what you're doing is a good deal. Make sure you're aware of all four of these lies that you might be telling yourself so that you will not end up buying your own BS, and in some cases, cost yourself thousands or hundreds of thousands or even millions of dollars.
Marcin Drozdz
The information contained herein is for general guidance on matters of interest only. This information contained herein is not intended to provide you with any advice on financial planning, investment, insurance, legal, accounting, tax or similar matters and should not be relied upon for such purposes. M1 Real Capital Inc, Marcin Drozdz is not a financial, legal or tax adviser. You should assess whether you require such advisers and additional information and, where appropriate, seek independent professional advice. You understand this to be an expression of opinions and not professional advice. You are solely responsible for any actions you take with the content and hold M1 Real Capital Inc, Marcin Drozdz or any of his affiliates harmless in any event or claim.