How to Overcome Fears of Real Estate Investing
What’s holding you back from actually making an attempt to buy your first real estate investment property is most likely fear or doubt of some sort.
I get it. I had my doubts when I was first getting started as a real estate investor too. Luckily, I was just a 19 year old kid so I allowed my youthful drive and naive confidence to take over quickly to outweigh my fear of failure.
Find the inner confidence of an ambitious teenager and you’ll get over fear quickly. But again, I understand there’s fear naturally. As someone who has more to lose the older you get in life, it can feel more “risky” to be getting into real estate investing.
I prefer, however, to look at the other end of things. As you get older, you should be saving away money quicker, earning more from your job, and have an established credit score that can help make qualifying for a real estate loan much easier.
My issue when I first got started in real estate investing was not having much capital at 19 years old and not having much credit history to show the bank a high credit score. But I didn’t let these two things become roadblocks and stop me from trying.
So to help you get over the fear of real estate investing, here’s a few things to consider:
What’s the worst that can happen?
When you ask yourself this question, it will make you think about the negatives of investin in real estate so you can assess how bad it could really be. And I think you’ll find out that the worst case scenarios are often a low percentage chance of happening and the reward far outweighs the risk.
In my opinion, the worst that can happen is you buying into a rental property, putting down $5,000-$10,000 of your money and you lose the home to foreclosure, assuming you made all attempts to pay the mortgage on time and also tried selling the home to get out of the deal before foreclosure finally had to happen.
If things get this bad, you lose the property back to the bank and you’re out the $10,000 you invested. But let’s real, $10,000 isn’t going to ruin your life financially. People lose more than that regularly in the stock market when stocks go down in value during bad years.
In most cases, you’ll come ahead financially investing in real estate. It takes planning and proper education to learn how to invest in real estate properly, but once you have the knowledge and make a business plan that appears successful on paper, the executing is much easier and the odds of making money from your investment increase greatly!
What if you find a partner to invest into a deal with?
If you have a high level of fear of doing a real estate deal on your own, consider finding a partner to invest into a property with. This gives you another person to bounce ideas off of and help you make smarter decisions.
It helps to find someone who has experience investing in real estate already that you partner with so they can show you the ropes as you learn.
This was the route I took.
I partnered with an experienced investor who had over 20+ years of owning rental properties and had financial stability, which allowed me to borrow money from them to buy my share into our first deal together. As the deal made money, I paid back the loan to my partner and got to pocket profits from there on.
As our profits grew, we eventually bought a second property and further snowballed our wealth from the profits generated from property
What if you have bad credit?
Traditional bank financing requires at least a 620 credit score for most loan options available to you, however, some go as low as 580.
Traditional bank financing is not the only method of funding a deal. There are many other ways to fund a real estate investment deal, so if a credit score is preventing you from getting a loan through a bank, consider these options
Ask the seller of the property if they would be the bank. They would accept a down payment from you, and then create a loan for you to pay them back over time until the house is yours free and clear. You can also refinance with a bank as your credit score improves and use a bank loan to pay back the seller.
What about the positives? What could you be missing out if you don’t?
I also like to think about the benefits I could be missing out on if I let fear take over and stop me from investing in real estate. These include extra income that the rental property would provide me.
This extra income could help me pay for bills I have like my personal residence’s mortgage, utilities, and repairs that need made over time.
It can also provide extra income for travel and vacation. It could help pay off debt quicker like student loans, credit card debt, or a car loan.
As real estate values go higher over time from inflation, I would miss out on the gains made from property values increasing. This can be substantial.
For example in 2020 the value of my first home was $189,000 and when I sold it in 2022, it was worth $260,000, gaining $70,000 of value from inflation and a hot housing market with low inventory and lots of buyers.
Had I rented instead of buying real estate, I would have missed out on these $70,000 of gains!
Things Are Solvable
It’s also important to realize that many of the fears you think about are often solvable if they would happen.
For example, if a plumbing pipe would break in the property, you hire a plumber to come fix it and you file an insurance claim if needed to pay for the cost of fixing the damage.
A good insurance policy can give you peace of mind if any damage would occur to your property. You may have a small deductible out of pocket but anything major after that is picked up by insurance, saving you thousands of dollars personally.
Other problems that arise will always have options for fixing them before things get really bad. You have time to think and make decisions.
Real estate is a slower moving game and you’re in control of your property making the decisions on how to run it and operate it as a business. As long as you make educated decisions things will work out okay and problems will be solved when they arise. The stress will be temporary.
Become a Handy Man
If you worry about the costs of renovations and repairs and not having enough money to pay for them, then consider learning new skills and becoming more handy so you can do the renovations yourself and save thousands of dollars on labor.
This is something I’ve done to increase my profits on each of my houses I’ve flipped. I did the flooring, paint, drywall, bath and kitchen remodels almost entirely by myself to save thousands of dollars not having to hire professionals who charge $50-$200 per hour for labor.
Overall, write down a list of your fears that are stopping you from wanting to invest in real estate. Then try to come up with pro’s and con’s of those fears. How valid are they? What’s the worst case scenario and best case scenario for each? Are the rewards outweighing the risks?