Real Estate Investing For Retirement — The Human Factor

by Jeff Brown

Real Estate Investments Broker

Author website

In the real estate investment side of the biz, everyone wants to talk endlessly about where to invest, how to invest, the best way to analyze the various investment factors, what needs analysis, and the rest. However, the most common factor left out of the process is the human factor.

How is the human factor described in the real estate investment process? Comfort zone.

There are any number of issues that can cause investor anxiety.

• Not fully understanding the loan itself or the loan process
• The size or lack thereof of the down payment — sometimes size matters
• Acquiring property out of town, even out of state — “I can’t drive by!”
• Tax deferred exchange worries — “What if something goes wrong?”
• The timing of the acquisition — “Isn’t this a bad time?”
• Just making investment decisions about when, where, why, and how

Most of the time comfort zone issues can be either minimized or eliminated by filling in areas of ignorance. I remember a client who was very afraid of investing out of state because if a tenant moved out she’d have to fly there. Obviously we hadn’t talked too much about out of state investing at this point. She was pretty anxious about it though, and was dead set against even considering such a thing. Once we explained the management team we had in the cities under discussion she relaxed a little. When we immediately called one of the management company owners (on speaker) and discussed the process her whole countenance changed. She now owns several properties in another state.

There’s nothing more soothing to a comfort zone violation than a knowledge injection.

Of course, the problem our San Diego clients face is there’s no real upside to investing locally. It’s not that in the next 5-10 years our local income properties won’t experience appreciation, because they will — it’s a given. But when was the last time you heard an investor talk about the great investment opportunities he uncovered in San Francisco residential income property? San Diego isn’t quite at that level yet, but they might as well be. When there are half a dozen areas within a couple hours fly time offering income property or homes at 40-60% of San Diego prices, and with far superior rent to price ratios, why would informed investors get excited about San Diego? Fact: San Diego and areas like it will never go back to the market conditions they’ve enjoyed for the last several decades. Investing there just doesn’t make sense. It’s truly a paradigm shift in the SD market, and folks there need to turn the page, and get outa Dodge.

But will their comfort zone allow them to even contemplate a move like that?

Comfort zones are a major reason why investors sometimes limit their retirement income potential. This is especially troubling since in my experience most comfort zone issues go away when more knowledge is injected. This issue alone is reason enough to have an experienced and very knowledgeable real estate investment advisor. Who else is going to properly administer the knowledge injection? 🙂 Of course, my policy has always been to give a client’s comfort zone priority over my Plan for them if there’s an unresolvable conflict. It’s their life, their money — and, most importantly, their retirement.

The human factor most often boils down to our comfort zones. We should always take a step back to see if our discomfort is being caused by a lack of information, or because we understand the issues and just aren’t comfortable with the proposed situation.

I often wonder how many investors have figured out years later, their decision to pass on an investment opportunity was based on fear of the unknown. Fully half of our new clients relate an experience illustrating that point.

Comfort zones are good things. Ensure yours is fully informed. Once you are convinced you know what you need to know, don’t violate yours.