How the Rich Think About Real Estate Investing
January 11, 2019
Why Your Thoughts About Investing Matter.
The world of real estate investing is both complex, and full of opportunity. Your mind set heading in to any deal may be the biggest factor in determining success. Does the complexity intimidate you? Do the numbers bore you? Are you comfortable with debt? Is the person across the table friend or foe? Do you see the deal as a zero-sum game or a chance to create a win/win situation? By asking these questions, it's easy to see how the thoughts and feelings you bring to the table impact both how you do business and the kind of business you do.
Study after study has shown that the rich approach real estate investing with a mind set distinctly different than their poor cousins. Here are 6 ways rich people think differently.
|Average Person||Rich Person|
|Debt is BAD||There is good debt and bad debt|
|Use my money||Use other people's money|
|Focus on saving||Focus on earning|
|Avoid risk||Manage risk|
Approach to Debt
Poor people see all debt as bad debt. They avoid borrowing money to invest because they focus on the interest they have to pay. Rich people recognize two kinds of debt, good debt and bad debt. They avoid bad debt but use good debt to leverage their investments and increase their rate of return.
Poor people get emotionally invested in their investments. They tie their self-image to winning the deal or "fall in love" with a piece of property. Rich people set their emotions aside when evaluating opportunities. They evaluate the numbers logically and let the numbers determine the value of an investment. They invest based on logic and math, not emotion and feelings.
Whose Money to Use?
Poor people invest with their own money. Their investments are limited by how much they personally own. Rich people use other people's money. They are only limited by how many investment partners they can find.
Saving vs. Earning
Poor people focus on how much they can save. They are concerned with how much their assets are worth. Rich people focus on how hard their assets can work for them; they are concerned with how much they can earn.
Approach to Risk
Poor people are uncomfortable with risk; they avoid it. By only investing in very low risk opportunities, they unnecessarily limit their returns. Rich people understand that risk is unavoidable and they put their efforts into managing it. They make sure they are paid for the risks they take. By accepting manageable risk, they significantly increase their rate of return.
Who Wins the Deal?
Poor people want to "win" every deal. They ask "how can I make this deal work best for me?" Rich people know the most lucrative deals are made between partners. They ask "how can we make this deal work for both of us?"
Finding Your Inner Millionaire
If you limit your potential by subscribing to "poor" person thinking, it's time to do something about it. Here is a three step process to find and unleash your inner millionaire.
Pay Attention to Your Thoughts
The next time you are evaluating a real estate opportunity or negotiating a deal, pay attention to your thoughts and feelings. The first step to changing your mindset is to be aware of what your mindset is. Now you know the kinds of limiting patterns to avoid, you can more easily recognize when you fall victim to them.
It takes effort to change. Commit to embracing a "rich" mindset. Much of the problem is simply a lack of knowledge. Rich people just know more about investing than poor people. When you deepen your understanding of real estate and real estate investing, you naturally feel more comfortable with risk; you learn how to manage it. Understanding the numbers and the terminology will help you set aside your emotions and focus on the factors that actually determine the value of an investment. Learn as much as you can and your inner millionaire will come out to play.
As important as it is to understand your investments, it may be more important to understand yourself. What are you bringing to the table? What are your expectations and fears? What is it you really want? Once you understand who you are and what you want, you can find the opportunities and structure the deals so as to align your personal and financial goals. For the rich, every investment serves a larger purpose and fits in a wider strategy.
Rich people don't just think, they DO. All the thinking in the world won't matter if you never pull the trigger and make a deal. There is no book that can teach what you will learn by getting out there and getting your hands dirty.
Perhaps the biggest difference between rich people and poor people is that rich people make more mistakes. Yes, MORE mistakes. Poor people don't take action because they are afraid of mistakes. When they make a mistake, they don't like to acknowledge it because it feels like failure. So, instead of seeing what went wrong, they retreat and refuse to take more action. Then, when they finally get up the nerve to try again, they make the same mistake.
For rich people, there are no mistakes, only outcomes. Every outcome, good or bad, is a chance to learn and make better choices next time. They recognize that success doesn't come from never making a mistake but from making lots of mistakes and learning from them.
If you want to be rich, it's important to think like a rich person but it's more important to DO like a rich person.