Real Estate Investor Psychology

If you study the most successful real estate investors of the day, you might be struck by how wealthy they are. However, you must consider how they got to where they are. Because in most cases, they weren’t born into wealth. Their success is the direct result of smart decision-making and the proper mindset. 

Here are some practical yet important psychology tips and tricks that successful real estate investors use (and you can, too) to become successful.

1. Learn to Accept Losses

Are you familiar with the term “loss aversion?”

In the simplest terms, it’s a behavioral finance concept used to describe a person’s tendency to prefer avoiding losses more than acquiring gains. In other words, losing something you already have hurts more than the positive feelings of gaining something you don’t have.

Losses are never good, but you can’t let them rule your real estate investing decisions. If you’re constantly worried about the possibility of losing—or if you let a past investment loss cloud your future decision making—you’re never going to be successful.

2. Avoid the Gambler’s Fallacy

The gambler’s fallacy is another interesting concept. It’s the belief that if an event has already happened, it’s less likely to happen again after the event has already occurred (or vice-versa).

In real estate investing, it’s easy to assume that because you failed on a previous investment, the odds are bound to be in your favor this time (or vice-versa). But by taking this approach, you could end up throwing good money at a bad deal.

The best way to avoid the gambler’s fallacy is to know what your goals are and use a sound set of principles to guide your decision-making. Keep a long-term mindset and trust that your commitment will be rewarded.

3. Never Follow the Crowd

It’s easy to get so caught up in following what other investors are doing that you start trying to replicate everything they do. And while there’s something to be said for using proven principles, be wary of making assumptions based on someone else’s success in a different market.

You have to analyze your own strengths and come face-to-face with your personal weaknesses. If you follow the crowd, you’ll make decisions that are smart for someone else but unwise for you. After all, if we all made the same decisions, we’d all be sharing the same marketplace.

Adding It All Up

Real estate isn’t some formulaic endeavor that’s predicated on having X dollars in order to get Y return. Unfortunately, it’s not as simple as feeding dollars into a machine and waiting for a bigger return.

There are so many mental and emotional wheels turning behind the scenes. And if you want to be successful as an investor, you must learn how to shape your psychology so that it’s conducive to sound decision making, steadiness, and a long-term commitment to growth. If you do those things, results will eventually follow.