Psychology of Real Estate Investing

Delayed Gratification

It's just human nature to want to see the results of your efforts as soon as possible.

You pick an apple and you instantly get to eat something sweet.

As a person grows up they start to better understand that some things take more time and/or work for a payoff. If you don't have an apple tree you can't pick any apples. But if you plant one and water and protect it, down the road you can have a lot of sweet, delicious apples.

Skills take time too. You can't just jump on a bike for the first time and have a wonderful joyride. You have to learn and practice and you might even get some bumps and bruises along the way. If you persevere you'll have the skills to use a bicycle to move around faster with more efficiency, and have fun doing it.  

So it's clear in these examples that putting time and work into something can be a very good thing, but there is another factor that comes into play... risk.


Risk is the chance that things won't go according to plan. What if strong winds kill the apple tree? What if you fall off your bike and break your arm and don't get to ride around all summer?

People have different risk tolerances. If your younger you probably won't think of all the possible risks so you're more likely to try things. If you fail a lot and have learned that you'll be OK no matter what happens you develop a high  risk tolerance. If you observe things going wrong for other people and/or you aren't used to failing then you'll likely have a low tolerance for risk.

Risk can be reduced by learning what the potential risks are and making plans to avoid or recover from them.

Opportunity Cost

You have $1 and you just stopped at the local mart for a snack. You see two new candy bars and chocolate is your thing... but they're a $1 each. If you pick one then the opportunity cost is you can't buy the other one. If you spend your dollar instead of saving it then you won't be able to save up and buy that shiny new bicycle horn you've been eyeing.

How it Applies to Real Estate Investing

Investing in real estate (or anything else) is an exercise in delayed gratification. When you buy a piece of property you have to wait a long time to get paid back for the investment and for it to start paying off. Meanwhile you could, and probably will, experience setbacks. Tenant issues, repairs, and a whole host of other things can happen. This is the risk involved.

What if you invest all that money and the market crashes or a large employer closes down? What if a tenant destroys everything? If you lose your investment then the opportunity cost of that investment really makes you think.

That didn't pay off at all! I could have bought a really nice truck and a boat.

This is why many people don't invest. They think the risks are too high and/or unmanageable and the opportunity costs just aren't worth the wait (delayed gratification).

What should you do?

Decide what you want in your life. Are you willing to take the risks of investing now to enjoy the benefits of it later?

Learn. From books, form others, and from your own personal experiences. Learning helps you identify and reduce risks. You don't have to know everything to start though. You will gain knowledge as you do.

Do. If you don't try and fail your risk tolerance will stay low and you'll likely not take the actions you need to get what you want. You don't have to have epic fails. You can take smaller steps so you don't have far to fall, but it will take you longer to get where you want to be.

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