Analysis Paralysis?!

[johnsu]

What I find interesting is that the REIN system is probably the most "Conservative" way to buy Real Estate, REIN gives away all the systems to manage the "risks" of doing rental properties and there still are REIN members who have the intention to buy but still haven't bought anything.



I understand it's an irrational fear but what specifically is the fear about?



I'd appreciate any insight into this.

 

[JoeRagona]

John,



I'm not the one to answer your question because I jump straight into fear and probably more than I should but I deal with people every day paralyzed by fear. They will not admit it.



People are driven by two human emotions: Pain or Pleasure.



Most will do everything in their power to AVOID pain only a select few will do what it takes to DISCOVER the pleasure.



The pain these people avoid is obviously losing money & making fatal mistakes they feel they cannot recover from aka FEAR.



This is why it is so important to continue with a group like REIN that helps you SEE more of the pleasure than the pain. I think the people who choose to do nothing are not yet convinced it's better to discover the pleasure.

 

[Thomas Beyer]

[quote user=johnsu]but what specifically is the fear about?


Any business has risks. Whenever you deploy capital for ANY investment, there is some degree of risk: bonds, shares, mortgage investment, real estate ..



There is also the risk of not acting, namely a lost opportunity. The risk of a (potential) loss has to be weighed in light of the possible gain.



What are the specific risks in real estate ?

a) vacancies

b) values might drop

c) asset has unseen/undisclosed deficiencies (structural problems, leaky boiler, leaky roof, mold, ..)

d) interest rates might rise to a point where even if rented it has negative net income

e) too little cash buffer to pay for expected or unexpected capital expenditures

f) sustained negative cash-flow due to falling rents or higher expenses or higher vacancies



Those risks are very real .. but can be mitigated with



i) more cash at hand

ii) EDUCATION (such as REIN provides)

iii) life experience

iv) prudent assumptions about realistic expenses/value/rents/vacancies

v) thorough due diligence when buying/analyzing city, sub-location and specific property !

vi) the right team members, say hiring a property manager instead of managing yourself, hiring a tax expert as opposed to doing it yourself, using a competent mortgage broker as opposed to going only to the house bank, etc. ..

vii) having a more conservative mortgage i.e. be less levered,

viii) be more patient on the acquisition and exit side .. it is not a get rich scheme .. it is a get rich for sure scheme .. but it takes a while !



For example, many folks, [including some REIN members I hear/know], paid too much in 2007 in the boom with too litle cash-flow, too high rent expectations, too rosy vacancy assumptions and too high a mortgage. The market did correct downwards somewhat in 2008 and 2009 .. a normal correction .. and some folks got too impatient and sold too early, often at a loss. With more attention to items i) to viii) many of those mistakes could have been avoided.



Real estate is a great business .. if executed well along the lines of i) to viii) !!

 

[AndrewMacDonald]

Before I bought my first rental property I was worried about a lot of
different what-if scenarios and I was concerned with several of the risks Thomas mentons. Most of my fear related back to losing money.



The two things that helped me to move forward were being surrounded by people who were already doing what I wanted to do successfully, and weighing the likely benefits against the likely risks.

 

[EdRenkema]

Here's the deal: if 10 yrs go by & you've done nothing then 10 yrs have still gone by. Individuals who join REIN & do nothing are not to be scorned, they've just been spooked by the awareness. If there is one thing REIN does well it is warning investors about doing their due diligence. Of all the properties that I've purchased since joining REIN not one of them was a perfect score on each and every metric of diligence. There was always a reason not to do the deal. However the reasons for doing it far outweighed the others. For me there was no rational option, it's not even for the financial gain altho this is the one of the biggest reasons. The biggest reason is making decisions, rational, educated decisions. My employer or my mutual fund manager were not making my decisions for me.

 

[housingrental]

I think the biggest issue currently is that in most markets the rent to purchase price of many purchases do not work... so its tough for many members to find potential purchases in the area they hope to target, or at the price range they hope to target...



As others have noted fear of losing money is an issue in general... the "what if" scenario's.... sewage backup? tenant damage? doesn't get rented? rents fall? prices fall? etc...

 

[Thomas Beyer]

[quote user=housingrental]I think the biggest issue currently is that in most markets the rent to purchase price of many purchases do not work


they DO work with more money down .. 20% down with cash-flow does not work in all markets .. but in some .. and 50% down works in MANY MORE markets !

 

[johnsu]

Joe,



Might we agree that you didn't DIVE IN BLIND? We all take chances but we as investors make informed choices. People FEAR losing money so are they subconciously looking for 100% Guarantee? Just really pealing the onion in a deep psychological way. Just like how you said people won't admit analysis paralysis, I wonder if these people are even aware they have it.



Thanks for the post!

 

[johnsu]

Hi Thomas,



You hit it right on the nail! Investings is about Identifying risks and mitigating them! Investing is directly related to one's ability to "Manage risk" when everyone always thinks investing is about "Taking risks" Totally wrong prespctive in my opinion, hence people are always peering over the edge of taking action.

 

[johnsu]

Andrew,



What you said reminds me of something Greg Christiansen of Christiansen developments recently told me: "Be in an environment conducive to taking risks" The REIN group supported you and gave you the confidence to move ahead.



Congrats.

John

 

[JoeRagona]

That depends on how you view Diving In Blind. If you know my story as my blog describes a lot of, you will tend to understand how I made the choice to real estate investing and then learned my way around. So I never did have analysis paralysis.



I am a careful analyzer, but I move forward because time is ticking, it's money and I don't want to look back and think I should have.



Yes, today I'm a much more confident and informed investor but I have moved from the business level of how I viewed money (profit margins, expenses etc) to the investor level where I use money as a TOOL to make me money - there is zero guarantee and the more investors/jv partners have this mindset, they will never move forward. I tell that to people almost every day and thankfully a bunch are listening.



You are totally correct in assuming people don't know they have analysis paralysis.

 

[Rickson9]

[quote user=ThomasBeyer] .. but in some .. and 50% down works in MANY MORE markets !




... unfortunately at that point an investor's cash-on-cash return is crushed into oblivion...

 

[JohnS]

John, I think in some ways you're being misled by well-intentioned people. I say this because I believe most of the people who have answered are not the kind who do hesitate this way. Like Joe said, he's the exact opposite. So, it's kind of like asking a lawyer what's wrong with the medical field. They will have their ideas, and some of them will be quite insightful, but they will also miss some elements, through no fault of their own.



Now, that's not to say that what has been discussed isn't entirely valid for some people. For some people, this fear of things going wrong is what is holding them back. It's probably what is holding most back. But I think there's more to it than just this, especially as one gets deeper into it, which is the way you wanted to approach it. You see, the fear isn't a big thing for me, although I have only bought a few properties and I've been a member for a long time. I firmly believe that investing is about risk mitigation as others have said, and I'm confident in the REIN systems to mitigate almost all of the problems that could crop up.



Now, some people here would say that I probably do have some deep, deep fears that I haven't really found yet - that's entirely possible, and I accept it. (Or, I should say, I'm in the process of accepting it - I don't think I'm quite there yet.) But when I was reading through this thread, I just kept saying "Nope, not me, not me, nope, not really, nope, not me....So, why haven't I done more?" Then, for some reason, I went back and reread Joe's first post, and something jumped out at me.



[quote user=JoeRagona]John,

I'm not the one to answer your question because I jump straight into fear and probably more than I should but I deal with people every day paralyzed by fear. They will not admit it.



People are driven by two human emotions: Pain or Pleasure.



Most will do everything in their power to AVOID pain only a select few will do what it takes to DISCOVER the pleasure.





Everyone here has been focussing on the "pain" component, but not that many have focussed on the "pleasure" part. And I think that's been missing. (I'm also just working this through in my head now, so I might have to come back later and modify it.)



You see, most people that know me (especially those that have done any of Philip McKernan's things with me) know that I tend to live primarily in my head. When I'm interested in something, the time just flies by as I research it and then formulate my thoughts and opinions on it. I'm a teacher by training, trade, and inclination, and I really like figuring out how to best explain something so that others understand it too. I derive a lot of pleasure from just thinking about things. But I've rarely gotten a lot of pleasure from the doing. (There are exceptions, like with mastering different sports, or way back when I was into acting in high school and university.) I know people that enjoy working with their hands, but I have a hard time understanding it. I know even more people that get a feeling of accomplishment when they've finished building/refinishing/fixing something concrete even if they didn't like doing the actual work, but I rarely even have that. I just don't derive the same feelings of satisfaction from those that I do of learning something new, or of crafting a researched opinion on something. I'm just not used to getting my pleasure from those areas, so I don't look to do so.



So, I got a lot of pleasure out of learning how to do real estate, without having to actually do it. I enjoyed learning the systems, and thinking about how to best implement them. I enjoyed helping some people analyze properties, even if I didn't get the thrill upon purchasing a specific one that they did. At the end of the day, I got the pleasure in a means that I'm most familiar with, so I didn't have a strong urge to change what I was doing.



(And yes, I'm aware that most people reading this will probably have a problem understanding where I'm coming from - just like I have a problem understanding people that like working with their hands!)



Now, all that being said, in the last year I've learned about, and actually experienced, the joy of the doing, at least in RE investing. I couldn't believe the feelings I had when negotiating the sale of my last home to a developer and the purchase of this one, as frustrating as the negotiations were at times. And even stronger was the rush when my first JV partner agreed that it was something he wanted to get into with us, and again when we closed on that property. Both times, I was floating on cloud 9 for a while! I totally wasn't expecting that, and just the feelings I experienced throughout the purchase with that JV partner have helped me to continue to push forward towards the next one.



So, what have I learned from this? (Because, the learning part is highly important to me!)





1) I have to start focussing on the pleasure I get from closing JVs and getting deals with them, especially as it's pleasure of a form I'm not accustomed to,



and



2) I wonder how much farther I could go with a partner that derives more of his pleasure from the doing. That partnership could work out quite well! Hmmmm........



Anyway, just some thoughts for you from a totally different mindset!

(And thanks, Joe, for helping to lead me to that new level of self-awareness!)



Have a good one, all!



JohnS

 

[wgraham]

Fear is mostly irrational and most of the posts in this thread deal with rational. Fear of the unknown. Fear of failure. Past experiences. Lack of exposure. All of these things are what the average Canadian deals with on a daily basis. Unfortunately most cannot escape and are stuck in their own worlds. Most haven't got the courage to do the uncomfortable and step outside their comfort zones and take some calculated risks.



We all deal with fear but some of us see it as a positive and some do everything they can to avoid it. Fear is often the only place that true growth exists.



Good luck,

W

 

[johnsu]

Great reply John and Graham.



FEAR is so general, my personal passion is same as yours John: Education that is PRACTICAL! I'm on the edge of really taking this further. I really believe it has more to due with the way the investment is



1. Communicated

2. How it was interpreted.



Because I think when something is communicated effectively, people reach a tipping point of filling the gap of the unknown. It's the difference between SELLING and HELPING SOMEONE BUY.



I've actually decided to now do some research on this. Stay tuned to my findings.

 

[Thomas Beyer]

[quote user=wgraham]Fear is mostly irrational and most of the posts in this thread deal with rational. Fear of the unknown. Fear of failure. ...



We all deal with fear but some of us see it as a positive and some do everything they can to avoid it. Fear is often the only place that true growth exists.


not quite .. Fear is what keep you from being KILLED !!



Fear of going too fast around a mountainous curve or driving from Calgary to Canmore at -20 !



Fear of falling off a steep mountain cliff that you could climb without a rope !



Fear of buying a property with a 90% mortgage in a falling property and rental market !! The real fear of going bankrupt !!!



The trick is to not be overly fearful .. but realistic !



True though is that the only area where you grow is your area of discomfort !



Thus: being uncomfortable but not fearful is OK in some areas of your life !!

 

[invst4profit]

Many have repeated the obvious reasons that they believe hold people back. Fear, Risk, Pain, uncertainty etc.

From this many posts have indicated how to overcome these so called road blocks to moving forward. Education, Knowledge, Courage, experience, teams etc.



I strongly believe all the things that hold people back and all the methods to overcome those road blocks have nothing to do with why people do or don't achieve goals.



Sufficient Desire. They do not move forward because they do not want what ever they are pursuing bad enough. They only think they do.



Whether it is real estate, sports, even marriage those that do not move forward don't do so because they do not want the goal bad enough. They think they do but in reality they do not want it bad enough to overcome whatever subconscious emotional barrier they have placed in front of themselves. It is an excuse to let themselves down easy.



It is not fear, risk uncertainty or any other emotional barrier it is the lack of a strong enough desire for the goal that holds them back. There is rarely anything that holds back a individual that truly wants to succeed at something. It takes very little to hold someone back that lacks the true desire to succeed.



One of the reasons groups such as REIN are successful is because individuals that join believing they have the personal desire to move forward, but actually do not, have the support of those with sufficient drive to artificially provide the additional drive they don't have on there own. The group breaks down the barriers the individual was using as an excuse to cover up there lack of sufficient desire.



You can gain all the knowledge, education, courage, all the tools necessary and still never move forward due to something you did not even know you lacked. Desire alone is not enough. To move forward, beyond the fear you need "sufficient desire" to achieve. You need to want it bad enough to move beyond what ever emotion is facing you. This is what is lacking in those that on there own never move forward and what is artificially provided by the support of others with common goals in groups such as this. People can actually achieve goals within a group support system that they lacked the true desire to achieve on there own.



With sufficient desire a individual does not need the support of others to move forward they simply need knowledge to provide direction for there desire. Although others provide many things that make it easier like money.



It's not analysis paralysis. That's just the excuse masking insufficient desire.



I believe this because I have never fail at any goal I have ever set for my self. I drive myself to succeed and have never given up on a goal. I have faced many fears but simply do what is necessary to overcome those fears driven by my desire to succeed. Thankfully I set realistic goals that are within my intellectual and physical possibilities.



I will never have a university degree but only because I know I personally do not have sufficient desire to achieve that goal.

 

[JoeRagona]

[quote user=invst4profit]



I strongly believe all the things that hold people back and all the methods to overcome those road blocks have nothing to do with why people do or don't achieve goals.



Sufficient Desire. They do not move forward because they do not want what ever they are pursuing bad enough. They only think they do.










Greg, this is EXACTLY my point. Pain or Pleasure. The PAIN of doing something is GREATER than the PLEASURE . That could mean anything, fear or losing money, quitting their job, finding tenants, making mistakes, whatever...the PLEASURE, which is what they SAY they want like you said...is just not great enough yet. It's very simple and it's why most of the world continues to AVOID the pain.

 

[invst4profit]

And the reality is there is nothing wrong with avoiding pain as long as one understands and is not disappointed by the trade off.



Personally I have suffered a lot of pain in my life. Emotional pain, for me at least is fleeting, but I do wish I could have avoided some of the physical pain requiring stitches. I don't mind the stitches, I've had a lot, and the scars are a sort of badge of honour but I hate the needles.



I have always entered into a venture knowing and understanding the potential risk of pain and by anticipating the worst case scenario thereby determined if my drive to achieve the goal was sufficient.

I admit that in many cases I have determined the potential pain to success ratio was not a viable option and therefor did not set that as a goal I chose to pursue. I determined I lacked sufficient desire to overcome my fear of the pain.



I generally approach challenges in this manner believe that logic should trump emotions.