Why taking a loss on real estate is the hardest thing to do

It may seem bizarre that we’re talking about taking a loss on real estate investments when in reality we should be concentrating on profitable assets. However, those who have been involved in the property market, or indeed any of the other major investment markets, will likely have experienced situations where losses have been staring them in the face. What did you do in these situations? Did you hold your bottle? How did the situation pan out?

Admitting you got it wrong is difficult

The simple fact is that there will be property investments which do not go to plan, which may lose you money but if you learn from your experiences you will thrive in the future. There are no property investors who have made a profit on every investment they have made and those who tell you otherwise are perhaps being economical with the truth. Even though many people believe you learn from your successes, in reality you learn more from your losses!

If you learn to swallow your pride, admit you got it wrong and cut your losses as soon as you are sure the market has turned you will prosper in the long term.

Cold hard facts

If you take a step back and look at the situation from a distance, how many times have you sold a property and crystallised a profit only to realise perhaps you sold a little too soon? There is nothing wrong with selling an asset too soon and crystallising a profit, as Lord Rothschild said “the reason I am so rich is because I always sold too early”, but it is much easier to do than take a loss. Very often a losing asset will continue to fall in value and get to such a point when you believe it is “not worth selling”. However, if you can make better use of the funds elsewhere then this is potentially an enormous mistake!

You must also learn to take away the emotion of investing money and use cold hard facts and figures when reviewing situations. That’s not to say that your “gut feeling” should not be taken into account but those who get emotional and attached to specific property assets are the ones most likely to lose money in the longer term.

The trend is your friend

Even though all trends will turn at some point, for many people the trend is your friend whether this trend is going higher on leading lower. If you think of the investment market, whether shares, property or any other asset, as a massive information exchange where different opinions are taken into consideration, this is not too far from the truth. Indeed if we look at the stock market in particular, many experts believe that the prices today take into account expected events over the next 12 to 18 months – although this is debatable.

So, while people automatically assume it is more difficult to take a profit than crystallise a loss, in reality it is very different. If you can learn to cut your losses and run your winners then in the longer term you will outperform the market. The trick to successful property investment is to work on cold hard facts, appreciate the trends and do not get emotionally attached to any investment. You must also place your ego to one side because taking a loss may be the most sensible thing you will ever do in the longer term!

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