Make Investment Decisions Based on Facts, but Don’t Ignore Your Intuition!
Many investors say the key attribute of a successful investor is to make decisions based on the facts and not emotions. There is definitely some truth to this, but this does not mean to ignore your intuition completely. If used correctly your intuition can provide important clues to assist you in the due diligence process of real estate investment.
A few years back when I was less experienced, I purchased a distressed property that the previous owner was trying to rehab over the span of 2-3 years while he lived there. The owner had run out of capital and was desperate to sell at a very competitive price. One of the concerns I had was the foundation work that they had done. They were attempting to change the foundation from stone to concrete block as well as underpin to lower the basement from 6 feet to 8 feet both of which hadn’t been completed. The home inspector discovered one of the underpinned walls showed evidence of shifting and recommended to follow-up with an engineer.
As the home inspector suggested I followed up with an engineer whose opinion was that the underpinning had some flaws, but that there was no serious issues. My intuition told me that the opinion of the home inspector was correct and to get a second engineering opinion, though the home inspector didn’t have the education he seemed to have the experience to make an accurate assessment. That said the engineer was from a reputable company, well spoken, and presented a convincing report which left me no reason to distrust his opinion. Given the cost associated with an engineering inspection, as well as the engineer’s well supported recommendations I decided to ignore both my own intuition as well as the intuition of the home inspector, and purchase the property without a second engineering opinion.
The foundation job was completed without a hitch, but it wasn’t until 2 years later that a portion of the foundation collapsed exposing a cavity from the outside. It was discovered that the previous owner didn’t go back far enough when replacing the stone foundation with concrete block and that the wall that had been in question during the purchase agreement wasn’t fully supported. This ended up costing thousands to repair, and a second opinion on the foundation could have saved me a lot of grief.
More recently when visiting a potential investment property in an up and coming area I had a chance to speak to a tenant and ask him about the neighborhood. He said it was okay, but I sensed some hesitation in his voice. This time I listened to my gut and decided to drive by in the evening. I quickly realized from the loud music and asking a series of follow-up questions that the property next door was an illegal after-hours night club.
The subconscious mind can pick up on many non-verbal cues which help us in making decisions. You should follow a proven investment system to guide your decision making process, but if you have a hunch use it as a call to action to gather more facts in your decision making process. Late night drive byes were not on my due diligence list, and I’ve yet to read any book that suggest it should be. It is was my intuition that guided me to do this additional due diligence, and saved me future headaches. Becoming an expert investor is about getting the balance right between the logical left side of the brain and the intuitive right side of the brain.