How many times have you been told that you have to keep your emotions out of your investment decisions?
I’ve even written about the dangers of emotional real estate decisions.
The problem with believing there is NO place for emotion in your real estate investing is that it ignores the simple fact that emotions actually allow us to make wise decisions and think clearly. Emotions help streamline our thinking so we can process many factors into a choice.
The issue isn’t that you allow your emotions to impact your investing decisions. The issue is when your emotions surge out of control or when you’re unaware of what you’re feeling and why.
In a fascinating read by Daniel Coleman called Emotional Intelligence, he says that IQ only factors into success 20% of the time. Emotional intelligence, like the ability to motivate yourself, understand someone else’s feelings and persist in the face of frustration, play a great role in your ability to succeed.
If you didn’t already fear a world of leaders who have been raised playing sports where you don’t keep score and where you’re given prizes just for showing up, thinking about this should do the trick. We need to learn how to handle frustration, disappointment, success and failure. We need to know how to motivate ourselves and others. These emotional factors are going to play into our ability to succeed and make great decisions 80% of the time.
Whether you did well in school or not, you can succeed. In fact, Coleman explains with repeated studies that academic intelligence and academic success offers virtually no preparation for the turmoil or opportunity that you’ll experience in real life. Being ‘book smart’ doesn’t translate into success. It’s why you often hear about the A student reporting to the high school drop out that started the multi-million dollar company. It’s also why you’ve probably been stunned to witness someone who is very smart by the traditional intellectual definition of the word make really dumb decisions that ruin his or her life.
So what does this mean for you as a real estate investor? First, you certainly don’t need an MBA to succeed as an investor. If anything, I can argue the MBA is a detour to your success as a real estate investor not a shortcut, but that is a discussion for another day.
Second, you don’t need to ditch your emotions. In fact, each feeling you experience has value and should be paid attention to.
I dedicated an entire chapter in More than Cashflow to the unique ability of women in real estate when they tap into their emotions and use them in investing (and men, you have this ability too!). Emotions are very useful in real estate. They will make you a smart investor if you know how to use them. So how do you do that?
Here are 5 ways to use emotions to make you the smartest real estate investor you know:
#1 Get to know yourself.
Self awareness is critical to success. When you know what you feel and why, you are going to be able to quickly identify when you’re overreacting. You’ll also be able to see when a fear might be irrational. For example, many new investors will panic to fill a vacant property. The fear of not having rent coming in can be overwhelming. That feeling can lead you to choose the wrong tenant (as we did once with the now infamous knife wielding tenant). The more you get to know yourself and what causes you to react, the easier it is to reduce the impact of an emotional surge on your business.
#2 Use your emotions to fuel you forward.
How bad do you want what you’re working towards? You have to create a vision that is compelling and that takes emotional connection to you goal. Mark Murphy wrote a great book on getting jazzed up to make big things happen called Hard Goals: The Science of Extraordinary Achievement. He says you have to get emotionally connected to your goals so that your goal is something you’re going to do instead of something you feel you have to do.
It’s not easy to get really charged up about making $10,000 a month. Yes, it sounds good, but when you have to squeeze the work in at 9pm at night when you’d rather be catching up on the last season of the Game of Thrones, that $10,000 won’t motivate you as much as you need it to. It is, however, much easier to get charged up thinking about being there for your kids – being able to take them to school, watch them play soccer, and not be tired and stressed at night when they need help with their science project. Getting emotionally connected drives you to get to completion. Almost everything you want in your life is going to take work, effort and sacrifice.
Kevin Hogan put this beautifully in this week’s Coffee with Kevin Hogan “Working toward and achieving your ambitions is one of the best ways you can lead a more fulfilling life. The problem is that most people want to FEEL HAPPY WHILE they perform actions that will cause them to achieve and accomplish. And this where people quit.
Effort is “hard” by nature and happiness “feels good,” and people don’t know that effort precedes lasting happiness.”
So get emotional about what you want to do, work hard and drive yourself to complete it.
#3 Relate better to others.
Empathy is a business builder. Being able to see and feel things from someone else’s perspective will make it easier to grow your business. If you’re negotiating with a seller, a hard nosed approach won’t work as well as putting yourself in their shoes and finding a solution to their biggest challenges. If you’re raising money and someone says “I just need to think about it”, the faster you can connect to what they are actually feeling, the quicker you can understand what the real issue is. You will be a better real estate investor when you’re in touch with your emotions so that you can connect to how others must be feeling. Not sure what you can do to be more empathetic? Start by focusing on great listening. Really hear what other people are saying (and not saying) is a great first step to developing empathy.
#4 Kick the moody moments to the curb and get on with the pressing matters.
We all have bad days. We all face challenges. I could list about half a dozen challenges I’m facing right now. Sometimes I feel overwhelmed, but most of the time I kick that feeling to the side because I don’t have time for it. In order to accomplish big things I can’t spend too much time on a high or on a low. I have a zone where I perform best – you do too. Try to stay in that zone as much as possible. You can’t manage time, but you can manage energy. This is the critical component to energy management and making great decisions.
Tony Schwartz wrote about managing your energy to create massive success in his book, Be Excellent at Anything. Besides the fact that you need to make wise choices around how much sleep you’re getting, what and when you’re eating, and how active you are, he says that the key to being in your highest productive zone is to first be aware of what you’re feeling. The more aware of your feelings you are, the more power you have to influence them.
#5 Delay gratification.
Quick wins will give you a jolt – an emotional high – but ultimately making a choice to get a quick win will rarely result in sustainable happiness or success. In the past I’ve referred to this as ‘eating your babies‘. Be aware of when you’re choosing quick wins over the longer term gains to be made. People who can delay gratification are more successful. Coleman says that impulse control is essential to success, and the foundation of self regulation: “the ability to deny impulse in the service of a goal, whether it be building a business, solving an algebraic equation, or pursuing the Stanley Cup” (p.83, Emotional Intelligence)
The smartest real estate investors are in touch with their emotions. They recognize that when the emotions run too high or too low, you can’t make clear judgements. A smart investor will also realize that emotion plays a critical role in making deals, raising money and running a business – but that understanding what causes your emotions and what you’re feeling is the only way to effectively be an emotional and intelligent investor.
In case you don’t know the value of emotions in personal interactions I thought I’d share a great clip from Big Bang Theory with Sheldon demonstrating how not to show empathy:
If this video doesn’t play you can copy and paste this link into your web browser: https://www.youtube.com/watch?v=7U3S43O1Sqs