Posted by It goes without saying that 2022 was a really eventful year in the investment world: the post-pandemic inflation hit a 40- year peak, putting central banks on the back foot trying to it. Interest rates increased in order to combat this inflation, which had a predictable corresponding impact in asset values. Whether it’s stocks, crypto or real estate, everything has been impacted in some way, shape or form.
Now, different markets react in different ways but the optimal mindset of an investor never really changes regardless of which market you’re operating inside, so it’s essential that you have an optimum investor mindset, that is, calm, rational, unflappable – someone who is confident in their strategy and in their decision-making.
Of course, that’s something that is easier said than done! So, let’s take a look at developing that investor mindset.
To be a successful real estate investor (or to be a successful investor full stop), you really need to adopt a long-term, delayed gratification mindset, thinking in decades rather than years, and you should certainly be thinking years rather than months, weeks or even days.
I realise that might not be a very sexy statement, especially for younger readers who would rather get rich fast, but it is accurate nevertheless! I rode that wave back in 2005 and in one deal made a 2.5million profit in just six weeks…. But that’s not something that you should expect to ever repeat in your career.
It was a once-in-a-lifetime deal for me, and whilst it was a very good one, you have to be able to recognise those deals for what they are – one-offs. It’s vital to have a very stable, calm approach to the way you invest.
Remember it’s a marathon, not a sprint.
First of all, remember that investing (especially real estate investing) is a long-term thing. You should think of it like a long-distance journey.
Think about crossing an entire continent: as you set out, you’re going to experience a lot of ups, downs, short stops, long stops, fast straights on the motorway and winding, narrow roads where you have to go slowly. Occasionally you’re going to have to hit reverse and you might even have to turn around and go back to where you started.
This is the reality of the real estate market – it is a long journey and it’s definitely not linear. Don’t expect it to go from 0 to 100 over a defined period: it might go 0 to 20, down to 13, up to 40 and then back down to 30. It is a zigzag but hopefully (if you get it right) it will go in the right direction over a long enough time period. However, if you look at it in short spurts, you could be looking at a loss.
Which mindset are you?
There are three types of mindsets when it comes to investment: the employee mindset, the entrepreneur mindset, and the investor mindset. The employee and entrepreneur mindsets are on two ends of the spectrum and the investor sits somewhere in the middle.
The employee usually works 9-5, Monday to Friday, earns a stable, reliable wage, which they use that to fund their lifestyle. If they’re smart, they’ll put away a certain amount of money for the future: their wealth-building process tends to be slow, but it is linear and will tend to go in an upward direction, albeit slowly.
The entrepreneur mindset is entirely different: you have to multi-task, be a bit of a practitioner of everything and a master of nothing. You own your company, so the buck stops with you. You can’t rely on anyone to bail you out, and it can be a constant firefighting situation. You are a problem solver and if you’re at the start of your career or your company is new, then you’re probably working 24/7.
It’s a bumpy ride and wealth isn’t guaranteed on the entrepreneurial journey: when it works it can work really well, but if it doesn’t work, it can be a bit of a disaster. It’s important to remember that something like 70% of entrepreneurs never get beyond being a solo entrepreneur employing just themselves – only about 30% of companies go on to employ lots of people and become huge companies. Of that 30%, only a small fraction go on to become unicorns.
The investor mindset is a combination that sits between the employee and the entrepreneur mindsets. You can be a bit of both with an investor mindset. But you have to remember that the traits that make you a good employee don’t necessarily serve you as an investor, nor do the traits that serve you as an entrepreneur necessarily serve you as an investor either, so you do have to be careful.
Learn to tolerate risk
Some people don’t get into investment because they don’t want to take any risks, so you need to learn to tolerate a higher level of risk than a than someone with an employee mindset in order to become an investor.
By doing that though, you have to accept that not all of your deals are going to work out. Of course, no one goes into a deal wanting or expecting it to fail – that goes without saying! If you’ve put your best foot forward, made a good decision (so you think) and bought an asset, do not be under the impression it’s fail-safe and that you can’t make a mistake.
Deals sometimes don’t work out even if you’ve done everything right – it might be the market or it might be some other aspect, either way it’s something that you have no control over. To expect a 100% success rate is simply naïve, so if you’re going to do four or five deals over the next couple of years, don’t go and buy just any property, but do realise that not everything you buy is going to be a winner. To assume so is simply naïve.
Don’t get fixated on how much you’ve made
One of the big mistakes I come across time and time again is people getting hung up on how much they’ve made on their asset, or assets. They’ll say they’ve made this much money because their property has gone up to a certain price, but the reality is that it’s only ever a moment in time. You only ‘make’ the money if you sell your asset (and then don’t forget about your taxes!)
Remember that what the property is valued at today may have dropped to far lower by next year. It’s why you need to play a long game.
Compare and despair
Success tends to flow to the investors that are calm, collected and rational: people who are willing to delay gratification and don’t feel compelled to prove anything to anybody. If you need to buy a fancy watch to show other people how successful you are, then you might be in the wrong game. Comparing yourself to others (who seem to have it all) is just the thing that’s going to sink your ship
The best investors are the ones with an inner confidence … but don’t mistake that with arrogance. If you’re out there bragging about everything, you’re missing the point. Calm, collected and quietly confident is what you’re aiming for – you have to be capable of waiting out a market that doesn’t care about your ambition or your feelings!