Emotion is a tricky thing. We all have them. We experience them every day whether positive, negative or even indifference. I remember when I started investing being taught to never ever, EVER become emotionally attached to a deal. It sounded easy enough and as head knowledge it is.
But then a funny thing happens…people and or money become involved!
Oh yes, emotion can make the smartest of investors make the most let’s just say ‘bone headed of decisions’. I will have to admit, I have fallen prey to the power of emotion on a couple of emotions. Never underestimate this factor when doing deals!
Let’s examine both of these avenues in depth so you can see how powerfully they can work against you, sometimes without even realizing it.
In terms of people…
Some people are really great at leaving emotion out of conversations. To me it has become a learned skill that comes over the span of years. I really enjoy helping people. I like writing these articles for that very reason. It’s no different when meeting with Sellers. I enjoy hearing their stories. What are their pains, their challenges and so forth. And it is ok to be empathetic. The problem arises because we go from a position of desiring to help and get a good deal to ‘we have to help’ these people. And just like that, logic and focus on numbers starts going out the door. The ‘need’ to help, especially if you are a people person is an enormously strong emotion. All of a sudden the numbers start ‘looking better’ even though they haven’t changed at all. The rehab looks ‘more doable’ even though the work needed hasn’t changed. The area the property is in starts ‘looking stronger’ although nothing has changed. Sometimes these things ‘stack’ leading to even greater emotion weighing against you. All without your permission with regards to numbers but WITH your permission when it comes to emotion. Because let’s face it…you HAVE to help the seller.
NO YOU DON’T!!!
I will say it again…NO YOU DON’T!!!
We offer a service as wholesalers to solve people’s problems. It is critical that the desire to help remain objective. Empathy is ok. Once empathy switches to a need, a red flag almost always should be going off in your head! This is how people pay too much for people’s property. And some Sellers are savvier than they first seem and will prey on this. Remember they have emotions too. And for all you know, they may be really good at negotiating, perhaps better than you!
Now let’s look at another common scenario…There is money at risk…
Earnest money is what I am referring to, to be specific. You put some up on what you thought was a really good deal. Maybe a couple thousand bucks or more. Now you are getting into the deal deeper and you are finding it is not as good as expected. Your inspection period is over or maybe there never was one. The brain goes to work right away with some questions:
How can I make the rehab cheaper? (if you are buying)
How can I make this still work with the comps?
If I walk, I will lose my earnest money. I can’t do that! (sometimes the worst trap)
What if my lender won’t fund this? Or what if the lender needs me to put more down because they recognize the risk?
These are just some basic questions that I have experienced in the past and heard many stories on. Usually on deals that were sold as ‘hot’ that weren’t quite so hot once one peeked under the hood. The biggest fear is usually that earnest money will be lost. So what happens far too often is the deal gets closed anyway. The problem here is the problems are really only just beginning. The deal is sold and now the questions of fear becomes your worst nightmare (or your Buyers).
Case in point, I know someone who closed a deal because they did not want to lose $2000 in earnest money. That deal has so far cost them over $50000. Think about that for a second. It’s not hard to fall into that scenario in a ‘hot’ market. I just saw a deal listed for $125000 that went under contract. A full gut rehab. For comparison purposes, we would have offered $55000 for it and bought one down the street for $63000. Scary what a ‘hot’ market can do towards logic. Ask the people who bought a few years ago before the crash. Moral of the story, never let fear of losing a few bucks scare you more than the alternative. Fear of loss is an immensely powerful emotion to never be underestimated!
Speaking of money, another word to the wise here…NEVER sell a deal to your Buyers that you wouldn’t close on and do yourself. That criteria will save you from lots of bad deals with a little effort.
In summary, if there is one emotion that benefits you is love. Fall in love with the numbers. Not the house, not the rehab, not what market is ‘hot’. Fall in love with the numbers. Because they don’t ever lie. Your ability to stay objective and have a grasp on them will make all the difference in the world on what deals work and which ones don’t!
Source: Emotion - The Deal Killer