There’s nothing wrong with falling in love. Unfortunately, we all have to keep our heads on straight when it comes to love. Getting your heart involved in something is always a risk - especially when it comes to a significant financial investment.
Sometimes real estate investors fall head over heels for their properties. That's OK - one of the things that makes real estate investment rewarding is that it inspires passion for what you do. No investor wants to have disdain or indifference toward their properties. The best investors are those who engage actively and enthusiastically with their assets and duties, after all. Problems arise, however, when investors fall in love blindly before buying a property and let their emotions cloud their financial judgment. Acting impulsively on a real estate decision can have long-term repercussions.
Buying Out of Love for a Property
It can start innocently enough. Maybe you’ve been tracking a property for a while. You sit on the listing, slowly growing in affection for it every time you check on it. What you’re falling in love with, however, could very well be the potential of the property, rather than the property itself. When you start to idealize and imagine a property as a dream come true, it can lead to some dangerous economic decisions.
When you think with your heart, rational thinking generally goes out the window. While that can be good in human relationships, it’s rarely beneficial in making investment decisions. A property with potential is great, but when you start bidding based on potential, you may overbid and end up spending far more on a property as you should.
Before making a decision about a property you have an emotional attachment to, ask yourself the following questions:
- How close is the reality of this property to my expectation of what it could be in the future?
- How much time and money, realistically, will it take for my vision to become reality?
- Does the property have any significant problems that I'm downplaying or overlooking?
- What benefits or drawbacks do you see in this investment several years in the future? How will the economic climate or the real estate market affect your investment?
- What do the numbers say? Does this investment make sense for me?
- What sacrifices would I have to make for this property?
- What would a trusted financial advisor tell me about this property? (Better yet, ask a trusted financial advisor.)
Keep your head on your shoulders and train yourself to consider your bid and potential acquisitions with thorough logic and objective consideration.
This is where surrounding yourself with other trustworthy real estate investors will help. If you feel your heart strings being tugged by a certain property, consult them for some non-biased advice. While you shouldn’t let anyone talk you into or out of a property, having their insight can keep your expectations in check. They may be able to see the long-term risks or drawbacks that you are missing and help you come to a wise financial decision.
Don’t end up in a bidding war with other investors over a property that won't bring in positive cash flow. There are properties out there that will be a wiser long-term investment, even if they don't capture your heart in the same way. In this economy, even the most affluent investors needs to make decisions grounded by good numbers and careful, objective evaluations.
Have you ever had to let a property you loved go? Tell us about it in the comments.