In a previous article we discussed some of the risks and rewards of real estate investing. While writing that article I very quickly discovered that there is no “right or wrong” answer when it comes to a magic formula to deciding which deals are too risky for the rewards offered. The ultimate voice that makes the final decisions between risk or reward, buy or pass, take action or don’t is your own.
So why can one person’s risk tolerance vary so wildly from another person’s? One rational investor’s decision to take a risk on a certain deal may make complete sense to that investor, however another equally seasoned investor is running away from the same deal. Both investors are right in their own minds and both investors get exactly what they want, gain pleasure and avoid pain.
It was only after listening to Tony Robbins on audio book and understanding that humans are naturally “instant gratification” creatures that I understood why some investors seem so motivated while others never seem to do anything. All people take actions for two different reasons in this world, either to avoid pain or increase pleasure.
Pleasure: This topic I believe has been discussed to death, over analyzed by countless books and most self-help gurus. Don’t believe me? Have you ever noticed all the solo sections or complete books that deal specifically with “Goal Setting.” Goals, whether long or short-term are simply a list of unique pleasurable consequences (with dates) each of us are striving towards.
Pleasure is tricky; be aware of the consequences of your so-called pleasurable actions. If you choose to watch television when you know you should be making offers on properties, the pleasure here is simply to avoid the immediate pain of taking action. If you choose to keep acquiring immediate gratification through procrastination you are only stealing from your potential free time in the future and are delaying your goals.
Pain: As human beings most of us do not like the feeling of pain in our bodies, the same goes with our mind. We often spend countless dollars trying to cure or repair our outward/inward problems and pains. Often times we are such instant gratification junkies that we fail to see how to use our short-term, temporary pain to get what we want.
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Pain Vs. Pleasure: Evaluating Risk Tolerance in Real Estate
July 15, 2010
by on MAY 28, 2010
Tags: Investing, Long Term, real estate, Short Term
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