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Have you ever been in a situation where you analyzed or thought about a situation so much that you were never able to arrive at a decision? It might have happened to you while thinking about a big career change, your love life, a large purchase or a significant investment. This is what is commonly referred to as “analysis paralysis,” and it happens to a lot of us. In many situations, decisions represent a binary choice: Do I accept a new job offer or stay in my current role? Should I have another child, yes or no? Should I quit (on anything) or keep going? What is paralyzing is the uncertainty of either outcome and the potential impact in the long term.
Investing in real estate very often causes analysis paralysis. Is it a significant decision that will impact your future? Check. Could it really hurt you if you make the wrong decision? Check. But more importantly, it’s not a simple go or no-go decision. Of course, when you are looking at a property to invest in, you need to decide if you want to proceed. However, it’s not sufficient to know if that property is a good investment. You’ll want to know if it’s a good investment compared to other potential properties. It’s not enough to find a good investment; you want the best possible investment. And to make matters worse, you’ll also want to know how it compares to properties that are not even available yet. No wonder so many new real estate investors I speak with struggle with analysis paralysis.
Inaction Has A Cost
When starting out on my real estate investing journey, I often found myself in exactly that situation. Either I would be incapable of reaching a decision or by the time I did, it was already too late. My hesitation resulted in losing out on what would have been amazing investments. It also resulted in my staying on the sidelines while the market value of similar properties kept increasing.
How To Analyze Potential Investments Without Getting Stuck
At the other end of the spectrum are investors who forego analysis and pull the trigger too quickly. I always say that investors should strive to become more data-driven. Don’t get me wrong, market knowledge and gut-feeling are also important. However, performing a strong analysis of your potential investments is what will make your investing strategy effective, accurate, actionable and repeatable.
Know your investment goals: Surprisingly, not everyone will agree on what the “best” investment is. It’s not just about cash flow — in my last article, I wrote about the other important factors for consideration, including appreciation potential, risk and effort. What is your investment time horizon? What is your risk tolerance? How passive or active of an investor do you want to be? Be honest about what you want to accomplish and why.
Forget about perfection: Sometimes the outcome of acting at all is better than waiting for the “perfect” investment, which may never materialize. This is one of the biggest hurdles I see new investors struggling with. The fact is there is no perfect investment property, and there’s always another deal to be had.
Build your knowledge: Often, decisions have to be made quickly. Build up your knowledge over time so that when the time is right, you know enough to feel confident in your analysis abilities.
Have a system: I have spent the last 10 years refining an investment system for myself and for my company. Why is this important? Because a system that is honed and that works will ensure repeatable success.
Trust your data: Your interpretation of data is only as good as the data itself. Know where to find and how to interpret data.
Analyze your worst-case scenario: A major factor in analysis paralysis is the tendency to start thinking about how devastating a bad investment would be. The truth is I’ve made a few poor real estate investment decisions in my life. I learned something from them, and at the end of the day, I sold them and landed on my feet.
Surround yourself with an A-team: When analyzing a property, having people you can trust to provide some advice can really help give you the push you need to make a decision. When I started investing, finding mentors I could trust was challenging. Real estate agents, for instance, had great knowledge, but they also wanted to earn a commission. Finding the people who you can trust and depend on will have a significant impact on your investing success.
Every potential investment has pros and cons, and investing always involves risks. Trying to find the perfect property is time-consuming and will keep you from moving forward. Instead of looking for perfect, aim for great and you’ll be much more successful.