Understanding How Your Mind Works

As you may know I like to make the beta reading of my book open sourced so the community that will be using them can actually gain the information and request changes or additional information to be added as the book is being written.

This post is One Chapter of my coming book, “GET THE DEAL”. Which the idea has it’s origins from the live training with the same name that I have taught to thousands of real estate investors all across the country and have had time to refine the information to answer the questions most asked at those trainings. Without further ado I want to encourage you to read this chapter and leave your suggestions in the comments below!

Chapter Two

“Success is not final; failure is not fatal: It is the courage to continue that counts.”

– Winston S. Churchill

In my travels as a real estate mentor and speaker, I hear plenty of conversation about what’s happening in the real estate market and why. Of course, it’s important for all us to have this understanding as well as an educated opinion on what’s coming next. Unfortunately, too many people are so focused on the negative and unknown factors, and they are overlooking the REAL opportunities.

For many of us who rode the wild roller coaster market of 2006-2008, things today just don’t look that bad. In those days, I was struggling just to find the down payment to close one deal with mortgage rates over 7.5% on my first house, while in the hurricane of a full economic recession. I danced around the fire like native American tribes praying for rain at night in hopes the finance gods would someday bring us a 5% 30-year fixed rates again and allow no down payment loans! Yet, with almost every economic factor working against us, armies of brokers, builders, lenders and others continued to look for the sunshine and seek out new opportunities. They were determined to not just survive, but to thrive. It is important to remember that many of them actually did.

It’s time again to get back to reality and back to the fundamentals. The market conditions earlier in the last decade looked more like “the happiest place on earth” than the real world. That was a gift, and there was a serious price to pay for that gift the last time we saw it and we faced the conditions of the Great Recession.

The good news is that our current climate – interest rates, employment, income growth, household formation and inflation are all at historically favorable levels. Even though at the time I am writing this we are experiencing the worst global pandemic the nation has seen since the “Spanish Flu”. The stock market has been swinging back and forth completely disregarding the true value of a company, and yet real estate seems to still be on the rise in the residential sector anyway.

Most important, there are millions of people who desire better housing solutions, and this demand will only continue to grow. Especially in the multi-family housing sector and in the southern states where the weather is better as well as the “depressed cities” (where the housing prices are more affordable) that lie between half an hour to an hour drive away from major cities.

What’s the key to empowering ourselves to recognize and make the most of today’s opportunities? In my opinion, there is nothing more powerful than a mind focused on abundance which I will continue to refer to as the “Alchemist Mindset”. With the alchemist mindset, you believe that there’s a lot more business out there. You just have to do the right things to capture it.

Unfortunately what we find more often is a “scarcity” mentality, founded on a belief that there’s a limited, finite amount of market share. We have to first do the mental work to put this old mindset behind us. To almost separate from the mainstream of our society by having a mindset that drives you to be better, faster, stronger, than our competition (or as I refer to them as, “our future partners or eventual replacements” as you move up in your empires) which is actually healthy and the key to wealth. An attitude that the only way we’re going to get new business is by taking from someone else, IS NOT. The sooner you can adapt the belief that everyone around you is a potential partner, the faster your retirement plan will come into being.

I once heard the story of trainer who was introduced to a real estate agent who had been “working” fulltime for 17 years, but had not yet bought a square inch of real estate. No rental properties, no flips and was still a tenant. “Deborah,” he asked, smiling calmly across the desk from her, “don’t you like real estate?”

“Are you kidding? I love real estate!” she gushed. “I’ve made the most wonderful friends of my clients. I really enjoy the seminars we attend and the office meetings are fun too. I look forward to doing the open houses every week and the best part of all is the thank you letters I get from my clients in their new homes and investments. Getting involved in real estate has changed my life!”

With a puzzled look, the trainer then asked “If you love this business so much,” “wouldn’t you like to actually own some real estate?”

Deborah leaned forward and answered softly “The truth is, when you buy a house, it’s really a hassle. There’s so much work with contractors, tenants, toilets and so many things that can go wrong. I hear the stories all the time and it really scares me. I like real estate a whole lot better if I don’t have to buy or own anything.”

At this point it was clear he had gotten to the bottom of Deborah’s little problem with real estate investment success. As I thought about it, however, I realized that this story carried more significance. Here’s someone who is professionally trained and presumably “in the business,” and yet she finds the real estate ownership terrifying. She’s not alone and her story is not an isolated one.

The reality is that many potential real estate investors, sellers and renters find the process even more terrifying than Deborah does. In the case of building a new construction development, we face the normal home-buying fears and then throw in the additional fears of dealing with a builder, construction delays, financing and the myriad of choices and decisions to make. My point is that every day there are millions of people who would love to flip a house or buy a rental property, but they’re simply afraid of what they’ll have to go through to get there.

Based on this reality, one of the most important fundamental messages I share in my mentorship training is that to really succeed in this business, we’ve got to find the ways to make it easier MENTALLY for our future millionaires to invest. Anything we can do to make the real estate transaction less intimidating will work to bring investors into the market who are held back by fear. As obvious as this may seem, relatively few in real estate fully appreciate the significance of this perspective.

Our most successful alchemists apply this concept wherever they can in their business. Their outstanding success attests to power of this approach. Some examples:

  • Educate the people you serve. The more they understand the realities, both challenges and benefits, of the rehabbing or land-lording experience, the less intimidating it becomes. Helping our clients begin the process with realistic expectations benefits all involved.
  • Provide Outstanding Communication and understand that in our business, no news is bad news. When you don’t know what’s going on, you tend to feel out of control, which breeds fear and dissatisfaction. Ongoing communication helps you know we’re working consistently in your best interests.
  • Deliver Outstanding Customer Service and Analyze every aspect of the experience and identify the many ways to make it more efficient, simpler and more easily understood.
  • Consistently Work to Increase Your Professionalism through ongoing market awareness, professional training, organization. We must consistently find ways to increase our ability to deliver the highest level of service and results.
  • Above All Truly Care About the people who we serve in our business which ranges from the partners you work with, your end buyers and your tenants. There’s simply no more powerful way to increase your success than to sincerely dedicate all of your professional skills and resources to helping people make their best decisions about one of the most important components of their lives which is where and how they invest their time and money to fast-track their retirement or to call home.

You have to understand that the day-to-day practice of real estate investing offers many opportunities for us to improve ourselves. Rather than wasting energy worrying about the scarcity of business. You will focus on adopting an alchemist mindset that empowers you to focus on making it easier for people to do business with you.

Alchemist Insights

You must believe that we are surrounded by an abundance of individuals and families who dream of a new home or neighborhood that will improve the quality of their lives. To enjoy this abundance of opportunity, you must never forget that we’re in the business of making these dreams come true.

Pain And Gain

Freud put forward the idea that there are essentially two guiding methods by which we can approach life: the pleasure-pain principle and the reality principle. We all begin with the first and some of us get the hang of the second as time goes by.

The first way of approaching life is by avoiding pain and seeking pleasure. It is a very simple system. If it feels good, then eat it, take it, or do it. If it feels bad, then spit it out, get rid of it, or avoid it. This works pretty well for most organisms. It is a simple, rudimentary system that helps even bacteria survive!

 For a little while, it works pretty well for people, too. During the first few months of our lives—when life is pretty simple and all we need to do is eat, poop, and sleep—the pleasure-pain principle is a winning strategy. Smile and laugh if it feels good; frown and cry if it feels bad. In either case, your parents will come running, and all will be well.

In order to better understand your responses and improve your real estate success it will be helpful to understand some basic human psychology. I promise these concepts are easier to understand than you might think. So lets dive into the basics.

Reality Principle

Have you ever had a sudden urge to do something you knew wasn’t appropriate for that situation. Maybe snatch an item of clothing from a store and walk out the door without paying for it? Did you follow through? Probably not, but what stopped you? According to Sigmund Freud, who conceived of the psychoanalytic theory of personality, what he termed the “reality principle” prevented you from doing something that might have landed you in trouble.

The Reality Principle At Work

To understand the reality principle, it’s important to first have a grasp of how the two components of personality identified by Freud function. The “id” seeks instant gratification of needs, demands, and urges.

If we acted according to what our id wanted, we might find ourselves grabbing food off of another person’s plate just because it looks so delicious or getting too friendly with someone else’s spouse when we’re feeling amorous. The id is ruled by the pleasure principle—the idea that impulses need to be fulfilled immediately.

The ego, on the other hand, is the component of personality that deals with the demands of reality. It makes sure that the desires of the id are satisfied in ways that are effective and appropriate—in other words, the ego is ruled by the reality principle.

The reality principle forces us to consider the risks, requirements, and possible outcomes as we make decisions by temporarily halting the discharge of the id’s energy until a suitable time and place.

In other words, the ego doesn’t try to block an urge, but instead, it works to make certain the desires of the id are met in ways that are safe, realistic, and appropriate. For example, rather than stealing that TESLA you want from a stranger, the ego will force you to wait until you can buy your own TESLA. A delay achieved through what is known as the secondary process.

This is a pretty basic concept to understand so far. So what Is the Secondary Process?

Reining In Unsuitable Behavior.

As you might imagine, the reality principle and the pleasure principle are forever at odds. Because of the role the ego plays, it’s often referred to as having an executive or mediating role in personality. The ego constantly engages in what is known as reality testing; it must come up with realistic plans of action that can satisfy our needs.

Freud often compared the relationship of the id and the ego to that of a horse and rider: The horse represents the id, ruled by the pleasure principle and providing the energy to race to satisfy needs and desires. The ego is the rider, constantly tugging on the reins of the id in order to steer a person to act in ways that are acceptable and appropriate.

The development of a healthy ego, one that leans on the reality principle to control impulses, delay gratification of a desire until it can be met appropriately, and so forth, is an important part of psychological development and one of the hallmarks of a mature personality. You will require a very healthy ego to work with the people and timelines that are a part of real estate success.

Throughout childhood, kids learn how to control their urges and behave in ways that are socially appropriate. Researchers have found that children who are better at delaying gratification may have better-defined​ egos because they tend to be more concerned with things such as social appropriateness and responsibility.

We also find that the most successful real estate investors have a very strong ability to delay gratification, which is a major part of their success.

Alchemist Insights

The key that successful real estate investors discover is finding a pain to move away from like being broke or relying on a single source of income. Then setting the goal of acquiring wealth and passive income with powerful emotions based on thoughts of what you will gain.

Fear & Procrastination Are The Symptoms, Not The Reasons

I recently did a little survey with real estate investors to see what is holding them back from getting started real estate investing.

Although I’ve been mentoring new and experienced real estate investors for a while now in preparation for this book I wanted to make sure to get a better understanding in order to address the most pressing reasons that caused procrastination.

So in light of this goal, I wanted to make sure I was on track with what really stopped people from getting into this business. I figured I’d get the usual answers from the survey:

  • I can’t find the money
  • I can’t find the deals
  • I don’t know how to analyze a good deal from a bad deal
  • I don’t know how to manage the rehab
  •  

Sure, these all came up, but some of the responses were surprising to me. Throughout all the hundreds of answers, one underlying emotional theme came through loud and clear. In one way or another every answer was based in FEAR.

The Biggest Problem Getting Started Investing In Real Estate

One of the biggest problems I found from the survey is that although most people REALLY want to learn how to invest in real estate, most people are AFRAID of actually starting. Take a look at just a sampling of the fears I found from people taking this survey:

“I don’t have the knowledge of the house flipping process and I might screw it up”

“Just plain fear of the unknown”

“I work full time so I can’t do it with the time I have”

“I have no idea how to find houses to flip”

“Doubt and indecision as to what to do”

“Lack of a good mentor”

“If I do, what would my boss say if he found out”

“I don’t have the confidence to do my first house flip deal”

“Fear of what happens when the house flip doesn’t sell”

“Don’t know how to analyze a deal to know whether its good or not”

“I have no idea how to estimate renovations”

“I have no clue how to manage a rehab”

Although, this is just a condensed list, what’s the overriding factor? In one simple word it was, “Fear”. If this is you or someone you know, you’re not alone.

Changing Your Pain/Pleasure Responses Related To Real Estate Investing

Everyone in the survey did express an interest in learning the nuts and bolts of flipping houses and owning rental property. When you delve into the open answer section of the survey, what really stops them is not the “HOW”. Instead it’s the fear of making a mistake, fear of the unknown, fear of loss and the fear of failure.

Why would grown adults who are mostly highly functional members of society allow fear to stop them from doing something that will make their lives better? Its actually deeply psychological…and proven by many PhD’s far smarter than me. That states when given a choice, people will do more to avoid pain than they ever will to gain pleasure.

One of the most important concepts on human behavior. Is that at the most basic level, there are two opposing forces that motivate people to do everything they do in their lives: “The desire to avoid pain or the desire to gain pleasure”. Unfortunately, these opposing patterns make people go back and forth between taking action to create some kind of change and losing their motivation to do anything at all like a yo-yo. Do you remember the yo-yo’s we used to play with as kids?

I fondly remember the trick yo-yo’s that would stall at the bottom after sending it down with the flick of your wrist and watching it return once it reached the proverbial “end of it’s rope” or ran out of energy. Unfortunately, the majority of people are just like that yo-yo. When they get to the edge of their comfort zone, they turn back and do nothing at all.

There are a few people who stand out though. Just like the high quality yo-yo’s of our youth, with well oiled springs and bearings. If you continuously take action (an object “in motion tends to stay in motion”. You change, and when you start changing small things by taking action, then larger changes are easier to act on. Before you know it you will have more passive income checks than you were making at your old job.

The Power of Leverage

Tony Robbins talks a lot about the idea of “mental leverage”, which is really kind of simple. He says that in order to get yourself to take action and make a change, you must first “associate massive PAIN to not changing NOW, and massive PLEASURE to changing immediately”.

The motivation then comes from using both forces, pain and pleasure to get yourself to take action. The “pain” part serves as the short-term motivation, while the “pleasure” side kick-starts your long-term motivation.

The Fear Mindset and Real Estate Investing

Let me propose something to you: What if you could trick your mind into thinking that there was no way you could fail? Then you associated massive PAIN with not investing in real estate. While associating massive PLEASURE to getting started. Would you get started? Envision the following scenarios:

Scenario #1

You’ve worked hard launching your real estate investment career and you find the perfect real estate investment opportunity. All of the signs and all the numbers point to yes. You have good financing, you know how much renovations will cost you, the 70% rule is nailed down and your real estate agent has given a fact-based ARV so you are 95% sure of the price you will get when you eventually sell the property.

You buy the house, fix it up and flip it in less than six months while making a clean $30,000 profit. Notice how good it feels, the joy and pleasure from this first major success. See yourself celebrating your success by yourself or with your spouse or business partners.

Can you see it? Can you hear the congratulations from the bank teller when you deposit that check? Did you notice how good that experience would feel?

Scenario #2

You’ve worked hard launching your real estate investment career and you find the perfect real estate investment opportunity. All of the signs and all the numbers point to yes.

You buy the house, fix it up and flip it in less than six months while making a clean $30,000 profit. Notice how good it feels, the joy and pleasure from this first major success. See yourself celebrating your success by yourself or with your spouse or business partners.

At the last minute, the day before the closing to buy it, your fears overwhelm you and you pass…only to see that in six months a real estate investor (not all that different from you) sells it at a price for what you are positive is at least a $30,000 profit. How much pain, anguish and REGRET would you feel?

It’s a completely unfulfilling feeling and I should know. I have been on both sides of this story enough times to tell you that this second scenario leaves a pretty painful reminder every time I drive by one of those old deals from my early days.

Either You Control Fear or Fear Controls You

In both scenarios, there was fear, but the difference is that in scenario #1, the fear was controlled, channeled and defeated. In scenario #2 fear was succumbed to and fear, I’m sorry to say, got the best of us.

Don’t get me wrong, by merely “controlling fear” and “associating massive PAIN with not investing in real estate and massive PLEASURE to getting started real estate investing” this is not going to guarantee you success entirely.

You still have to do all the numbers and double check everything. You still need to use a specific SYSTEM of steps that minimize that odds of a bad deal, so you can place yourself in a position to reap the profits of only acting on deals where the numbers work.

If the numbers work, you need to act. Don’t second guess. Take action and start investing in real estate. This is the mindset you must adopt first and the most critical step to real estate investing success. Is there still something holding you back? Let’s beat it!

Beating the Fears that Cause Procrastination

As I have eluded to in the previous section, procrastination is almost always based on some kind of fear. Figuring out how to beat that fear is the key to remove procrastination, in the long run. Quick fixes are fine, but if the fears remain unabated, they will continue to act on you, causing you to want to procrastinate despite your best intentions.

So how do you beat fear? One of the reasons fear can be so powerful is because it lurks in the dark and remains unnoticed, in the recesses of our minds. It acts without us knowing it. So the first step is to shine some light on it. The light is our attention, our examining of the fears, our taking a close look at them to see if they’re rational or baseless. Fear hates light!

Once we’ve shined a light on the fears, we can beat them with information. For example, if you’re afraid you’re going to fail, well, do a test on a similar, but much smaller sample and see. If you don’t fail, that’s information. You now know that, at least with a small test, you won’t necessarily fail.

Keep repeating the tests and you’ll gather a lot of information that is contrary to the fear. Beating the fear because you now know with good certainty that it’s baseless. Shine a light on the fear, run small tests, and beat it with information. Let’s first look at some of the fears that cause procrastination, and then talk about shining a light on those fears.

Some Procrastination Fears

A number of fears contribute to procrastination, including but not limited to: Fear that you’ll fail or do badly. Probably the most common one.

Fear of the unknown because the task is not familiar to you, so you don’t know what to do or where to start.

Fear of the uncomfortable. It’s easy to do things we’re comfortable with, but doing new things is uncomfortable so we put them off.

Fear of starting in the wrong place. You don’t start because what if you’re not starting the right way?

These are all obviously related, and they can be summed up as “fear of failure or not being good enough”.

Fear runs in the background just like a background process on a computer, unseen by the common user. Unfortunately, because we are not aware that the fear is running in the background, lurking in the dark, and acting on us, it has great power over us. Let’s take a look at how to beat these related fears.

Shining A Light On Fear

So the first step is to pause, and shine a light on the lurking fear. In our every day life we like to  avoid this process, but I am going to ask you to dig deep and be honest with yourself. Why are you avoiding this task? What are you afraid of? Here are some examples of counter-productive fears in no order of significance:

  • Cold-Calling home-owners to ask them to sell to you at a discount
  • Working with Hard Money
  • Asking friends or family to lend you money
  • Getting pre-approved by a lender
  • Putting in an offer on a property
  • Asking a mentor for advice or signing up for a paid class
  • Closing on a property
  • Lending money on a real estate deal
  • Evicting a bad tenant or raising the rent on good tenants
  • Calling a real estate agent to see property
  • Contacting cash buyers to sell your wholesale deal to
  • Negotiating with contractors or property managers

If you don’t know, just ask this: are you afraid you’ll fail or do badly, or won’t be good at it? Are you afraid of not being good enough or being taken advantage of?

The answer is likely to be yes, if you’re honest. If you still aren’t sure, that’s okay. You might not be good at recognizing your own fears yet, and that’s perfectly normal. Just assume that it’s a version of these fears, and practice examining your fears more often so you’ll get good at recognizing them.

Now ask yourself: Is there a reason you think you’ll fail or do badly, or that you’re not good enough? Have you failed at this kind of task a lot before Or is it that you fail or do badly at things in general?

It’s possible that the fear is groundless, and that you normally do well on tasks like this, or on things in general. In that case, it’s probably based on some incident in your past (perhaps childhood) where you didn’t do well and there was a bad consequence. This incident created a fear in the back of your mind that’s still operating today, even if doing badly on things today probably wouldn’t have the same consequence (fears are irrational).

It’s also possible that you might do badly or fail, because you don’t know how to do the task. In that case, is it rational to put the task off, or learn by getting information and training, and practicing? Take the rational route and don’t let the fear, even if it has some basis in reality, stop you from acting. This book is full of answers on HOW to handle most real estate activities and I am always updating my website with more articles and training videos if you are looking for more clarity. Of course if you think of something I haven’t addressed yet, you can always send me a message and I will add it to future versions of this book and on my website.

Run Small Tests

How do you know if the fear is rational or not? Ultimately testing it is the only way to find out. Run a small test at first by doing a small amount of the task, and see what happens. Was it horrible?

Most likely, a small test will give you decent results, but you still won’t trust that your fear is groundless. So run another small test, then another. By doing small tests, you aren’t risking anything really bad, and you can quickly get results.

So how do you run small tests? Some examples might include doing just 5-10 minutes of a scary task, practicing just the most absolute basic skill of a group of skills you don’t know, or doing a very easy, non-public project that doesn’t take long before tackling a similar but harder or more public project.

A specific example of a small test for a new wholesaler or real estate agent is finding the phone number of a homeowner. The next small test would be putting their number in your phone or database. The next small test could be calling them and either leaving a message or just saying hello. All of these small test would eventually lead you to asking this person if they are interested in selling their house. If you are concerned about knowing what to say you can find plenty of FREE cold-calling scripts in the University section of GualterAmarelo.com

Running these small tests is such an important part of success and it is easy to overlook the small things. If you are serious about your success put it on your calendar to tackle one of your small tests before the day is over and have faith in the process.

Win With Information

Once you’ve run some small tests, you now have some information you didn’t have before. Before, you were afraid of a bad outcome but didn’t really know if the bad outcome would happen or not. Now you can say with more certainty whether the bad outcome is likely or not.

Let’s say you were afraid of failing or looking bad at a task, but you did some small tests and it turned out fine each time. Now you can say, “Well, it’s not very likely that I’ll fail, as I didn’t fail the other times. Maybe my fear isn’t very grounded in reality, and isn’t very rational.”

Use this rational process to beat the fear. It’s irrational and doesn’t make much sense, and if you look at it rationally you’ll see that. Gradually, through this process, the fear will lose its power.

Alchemist Insights

It takes a bit of time to beat fear through shining a light on it, running small tests, and using information and rationality to finally banish it, and it’s worth the effort. In the past we may have allowed fear to control us too much, allowed it to cause us to procrastinate through “analysis paralysis”. Now with a rational process and the Alchemist Mindset YOU can take back control.

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