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The Three Most Destructive Emotions in Real Estate Investing

And, the only thing you need to do to avoid letting them rule your investments

by Julie Broad

I confess that when I am standing around at Starbucks waiting for my Americano I always take a look at the headlines in the paper. And lately, I find myself feeling jolts of fear and hope as I read the headlines about the Canadian housing market. Last week alone Canada's housing market was recovering, set to plunge dramatically, and ready for a soft landing. Check it out:

"UBC Expert Says Urban Home Values Set To Plunge" - cbc.ca September 9, 2008
"Resale Listings Surge While Sales Slump" - Globe and Mail, September 3, 2008
"Ontario Leads Rebound in Home Construction" - Financial Post, September 9, 2008
"Toronto's Luxury Condos a Bargain Compared to Other World Cities" - Toronto Star, September 8, 2008
"Housing Starts Dive 60%" - Calgary Herald, September 10, 2008
"August Housing Starts Better than Expected" - cbc.ca, September 11, 2008
"Central Okanagan Sees Big Dip in Housing Sales" - Globe and Mail, September 11, 2008
"Soft Landing Predicted for Real Estate" - Montreal Gazette, September 10, 2008.

Each of those headlines instill either a sense of fear that the market is crashing and it's going to be ugly, or hope that the market is going to be o.k. and we won't suffer at all. But my emotional reactions to those headlines last less time that it takes for the Starbucks Barista to ask me if I want the extra shot in my coffee... you see, I know the objective of each paper is to sell more papers. And, the bigger the feelings of hope, fear or greed they can inspire the more papers they will sell.

FEAR:

The feeling of Fear may cause an investor to panic and sell everything or, it can cause them to freeze in fear of taking any action at all terrified it will be the wrong thing to do. Either way, you're not doing the right thing. If you do nothing then you aren't moving towards your goals, and if you panic then you will be following the herd of people using the headlines to make their decisions. And you want to buy when THOSE PEOPLE are selling, and sell when they are buying!

HOPE:

Hope often leads to making decisions without all the details. Your friend buys a stock and says the price is going to rocket to the sky, and you buy it with the hope that they are right. You read an article in the paper that says that King West in Toronto is going to be THE Hot Spot to live in next year, so you buy a condo there hoping that the article's prediction comes true. Ever heard the saying "hope is not a strategy"?

GREED:

When the market is going up, investors will overextend themselves only seeing the money they will make not the risk they are taking. They will make hasty decisions for fear of missing out on the next big gold rush of an investment. The market's been going up and up, and they think they have to get in at any cost and want to make the money that everyone else seems to be making. The next thing you know, the market cycle starts heading downwards and everything flies apart.

So, you can now recognize the three destructive emotions for a real estate investor. But what can you do to help keep them from controlling your decisions? It's simple... you only need to do one little thing!!

Set your real estate investing goals and evaluate everything you do against those goals.

I know we say this in almost every article and newsletter, but it's because when we didn't have a plan, we made some bad decisions. We don't want that to happen to a single one of our readers, so we will constantly remind you to make a plan, put it in writing and review every decision you make with your plan!

One of my favourite quotes comes from Alice in Wonderland:

"Would you tell me, please, which way I ought to go from here?"
"That depends a good deal on where you want to get to," said the Cat
"I don't much care where..." said Alice
"Then it doesn't matter which way you go" said the Cat
-Lewis Carroll, Alice in Wonderland

You will avoid making decisions based on fear, greed and hope if you know where you want to go. You will look at the potential real estate purchase or sale, check it against your goals and your plan, and make your decision based on whether it moves you closer or further away from your goals.

And if you do that, you can ignore the media! It doesn't matter if everyone else is terrified, hopeful or filled with greed. You have a plan and are working towards that plan. You will look for specific deals with criteria from your plan, and if something meets your criteria you will buy or sell, no matter what the headline says is happening.

Published on September 20, 2008

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