If you have thought about getting started in real estate investing but haven’t taken action yet, you are in good and plentiful company. Most everyone knows that real estate investing can help you achieve all your major financial goals often with less risk and volatility than other alternative options (i.e. stock market). You probably already know that if you succeed in building a solid real estate portfolio you can create a stream of passive income that can serve as retirement income you can enjoy much earlier than your typical industrial revolution retirement age of 65. Or, that quality real estate investments can help you build a seven-figure net worth over the next 15-25 years. Last but not least, you’ve probably heard that investment properties can serve as a hedge against the eroding effects of inflation while they help you diversify your investments and lower the risk across the board.
The main reason behind the lack of action rarely has anything to do with doubts about the benefits of investing in real estate. Instead, there is one main reason that holds people back from real estate investing. Today, I will give you an overview as well as offer mental models, mindset shifts and strategies you can use to keep it at bay so you can finally take action.
The Obsessive Research Loop
By far, the main reason that holds real estate investors back from taking action is Paralysis by Analysis. This reason typically holds back investors who are otherwise ready to go: The capital has been saved and ready to deploy and financing pre-approval is in place. The main questions that paralyze you are:
- What’s the best real estate investing strategy
- Which market(s) you should invest in?
In a way, this is a sign of the times. We live in an era where new investors have unprecedented access to incredible amounts of real estate investing information. The good news is that there’s never been a better time for information-hungry prospective investors. It’s an all-you-can-eat buffet of blog posts, articles, podcasts, youtube clips, books, classes, forums, social networks and everything in between. The bad news is the same as the good news. When we’re presented with endless choices, humans tend to freeze and do absolutely nothing.
After all, how are you supposed to know what’s the absolute best strategy for you? One day you read an article by a very bright and experienced investor that tells you that you’re crazy if you invest in anything but single-family homes. The very next day you watch a video that professes the exact opposite is true. Does this sound familiar: “Single-family homes are from amateurs and multi-family is everything”? Then that weekend, you go down the rabbit hole in a forum full of investment horror stories that make you question the whole investing thing.
Reframe your questions
The main reason why you find your main questions difficult to answer and enter a vicious circle of never-ending research is that they’re the wrong questions in the first place.
The first thing you want to do to get unstuck is to reframe the questions. Instead of asking what’s the best investment strategy, try asking what’s the best investment strategy for my goals
It might seem like semantics at first glance but stay with me. There is no one-size-fits-all best strategy because strategies are just tools meant to solve a certain problem. Different problems call for different tools. A saw is a fantastic tool if you’re trying to cut a piece of wood but it’s a very poor tool if you used it to drive nails into it.
The strategy you use to create a passive income stream of $50,000 per year would probably not work if your goal is to build a real estate empire that owns 1000 apartment units. You must start with your goals and then fashion the appropriate strategy for those goals.
Simplify with Occam’s Razor
What’s the appropriate strategy? This is the time to bring in Occam’s Razor principle: Among competing hypotheses, the one with the fewest assumptions should be selected. Or in simpler language, Occam’s razor states that the simplest solution is usually correct. In other words, if you build an empire of 1000 apartment units you will also create a passive income stream of $50,000 per year in the process but that’s not the best strategy to achieve that goal. A simpler strategy of acquiring four to five single-family homes and paying them off would be a better option.
Then, once you’ve decided on the simplest strategy for your goals, you can ask: Which markets offer the types of assets prescribed by your strategy? Keep it simple here as well. If your local market does offer a reasonable supply of your target properties, then keep your investments local. If not, then you can expand the range and look at other markets.
Broad, then Narrow
The second thing you can do to get unstuck and take action is the following mental model: Broad Then Narrow. This model is very effective especially if you are the analytical type (as I am). Let’s put it this way: If you’re the type of person that likes to analyze all the possible what-if scenarios that could ever happen from now until eternity then this mental model is for you.
Here’s how it works. When we work with a client on strategy, we first go broad. We start with your income goal and the amount of time in which you want to achieve it and work backward to the present day. What’s the simplest solution to solve that problem and the most appropriate asset type (single vs multi-family, residential vs commercial) to solve it? Then, we determine how many of those assets you need to purchase to create that income stream, how much capital and how long it will take given your current capital and savings rate. As a result, we lay out a broad plan for the next 10-20 years.
This is the critical point where analytical real estate investors usually get stuck. They start thinking about what if the interest rates change or the economy goes into a recession or I lose my job etc. Therefore, they analyze infinite possible scenarios to death and never take any action at all.
The key concept to understand is that once you go broad with your planning, you have to go narrow with your execution. In other words, when the time comes to execute your plan, you can’t worry about what might happen 3, 5 or 10 years down the line. Instead, you narrow your focus to what you want to accomplish this year and in order to do that what you must do this quarter or this month. If your plan calls for two acquisitions this year, all your focus should be on completing one acquisition over the next 6 months. If you narrow your focus to each step you must take now and take it, the 15-year plan takes care of itself, doesn’t it?
In Conclusion
Most real estate investors fail to take action on their real estate investing strategy the enter the never-ending research loop in an era where there’s an incredible supply of real estate investing information. In this environment, it becomes difficult to know what’s the best investment strategy and which markets you should focus on. Planning and research are prudent and necessary activities to the success of your investment strategy but they can paralyze you when that’s all you do. Therefore, in order to get unstuck, you can stop trying to find the perfect real estate investment strategy and Apply Occam’s Razor principle to determine the simplest real estate strategy that’s suitable to your unique goals. Once you’ve determined your strategy, go broad and plan out your course. Geek out by working backward from your goals in the far future to the actions you must take each year to accomplish them. But then, go narrow and focus only on the action you must take this month or this quarter to make those big goals happen and EXECUTE. There’s definitely a prominent place in your real estate investing journey for planning and research but not while you’re in execution mode.
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