I want to start with a quick market update because things have been crazy. Prices are starting to relax, but properties aren’t trading. Brokers are listing self-storage deals that aren’t selling and are being taken off the market. But I’m hopeful that the opportunities will come soon.
Something that’s been on my mind recently is the natural urge of real estate investors to keep pushing to do bigger and bigger deals. It’s a tale as old as time; a new investor gets their first real taste of money, maybe their net worth has turned to seven figures, and they’re seeking something more and still see themselves as young and hungry.
To pull back a bit, I see the world as only having three levels of wealth. The first level is when you can pay your bills and feed your family without feeling stressed about it, and unfortunately a ton of people never reach this mark. The next level is when you can walk into a restaurant and order whatever you want without worrying about the price–you’re no longer budgeting on small incidental spending. The third level is being able to travel anywhere in the world you want without worrying about the price of your flights or hotel, you’ve reached total financial freedom. Beyond that, I don’t think more money has an actual impact on the quality of your day-to-day life.
With that being said, we still see people risk it all to make more money when they already have two levels of wealth covered, and there’s nowhere that this is more common than in real estate. Any given deal has as high of a 20% chance of failing, all dependent on your strategy, your operations, interest rates, and the macroeconomy. So why do investors become so obsessed with the chase that they can’t stop risking so much on these bets? How is there an excuse for somebody worth over $10M to go broke?
This is an addicting game. It’s easy to get hooked chasing bigger and bigger deals, especially after you get a real taste of success. It’s just like the gamblers that can’t pull themselves away from the poker table. There isn’t much in the world that’s more fun than putting together great deals, so the rest of your life feels so boring in comparison. People are wired for a constant state of motion, and real estate is like hunting. The motion makes it so fun to hire and grow and keep hunting for bigger and better deals. It’s rare for a high-powered person to feel comfortable waiting out a bad market. Productivity is a serious hobby and can be addicting.
As you grow, opportunities become more lucrative too. You’ll have more important people calling, the opportunities keep getting better, and it becomes hard to start saying no. And as you grow rich, your ego grows too, and you can get cocky. You begin to build an exaggerated view of yourself, attributing your success to skill and not luck or a great market, and you develop blind spots. This ego is hard to quench. Not only will you want to set more drastic goals for yourself, but you’ll start to associate with richer and more successful people that you’ll compare yourself to.
But what happens if the music stops? If you make an error, if you’re wrong, or if a black swan event happens, you’re risking everything you’ve built. Getting rich requires confidence, charisma, leadership, energy, risk tolerance, and addiction to progress. Staying rich requires no action at all. Staying rich requires patience, humility, risk aversion, and the ability to say no. Folks who can stay rich understand that a great deal won’t change their life, but a bad deal can.
Your ego is a tool that must be controlled, and at some point any successful entrepreneur will need to shift their approach towards wealth preservation rather than wealth building. It can be hard to step back and understand this truth when you’re in the weeds, and that’s where people get in trouble.
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