We are overcome with emotion just thinking about it: excitement about earning more money and what we will buy with that money; fear of failure and having to find a job again or letting our family "be right" about this career move; or nervous or doubtful, wondering "does this stuff really work?"

It is normal to feel an array of emotions when you began a new venture that can lead you far from where you are today.  The purpose of this article is to caution all investors, new and seasoned, to make decisions based on a business plan, not on an emotion.

Nearly every emotional business decision you make will cause you to lose money.  Let's be sure that doesn't happen to you.  When it comes to real estate investing, the following emotions can be revealed if you are willing to analyze how you made your business decision.

Excitement:  When you are excited about the property, you will overlook or embellish the numbers to ensure a profit on paper to justify buying the property.  We become excited about a property when other investors are at the property when we view it, or when we are presented higher than normal profit numbers.

If you've ever been to a real estate auction, you may recognize the excitement emotion I'm speaking about.  You tend to get so "caught up" in the excitement of being the winner that reasoning is left out of the bidding.  Another time you feel this way is when you are excited about the possibility of what you can do with the property.  You may see it as a single family home that could easily be turned into multi-units.  You become so excited about the possibilities that you overlook the proper research necessary to make the change and before you know it, you own it without the change being allowed.

After closing, the excitement subsides and reality sets in.  Money is spent on rehabbing and then when it's time to sell, the profit seems to be missing.

Fear or Doubt:  When you experience fear or doubt about a deal, you will pass on the opportunity.  There are two times when this will happen to you: one time is when you are a new investor and you are not experienced enough to make a buying decision, so you pass on opportunities, even when they are great deals; and the second time this will happen is when you are a seasoned investor.  As a seasoned investor, you must recognize this emotion as a red flag and act accordingly.  It is most possible that your emotions are triggered because something is just not right.  Trust this emotion to drive you to perform further due diligence.  You will most likely pass on this opportunity and be glad that you did.   As a seasoned investor who is low on money or number of deals, you will tend to overlook this emotion and move forward simply to ensure more income.  By avoiding your caution mechanism, you will most likely walk into an unprofitable deal that causes you grief and a dip into your funds, rather than an addition to your funds.

Greed:  We all fall prey to this emotion at some time or another in our investing career.  It's tough to recognize this emotion because we all want a "great" deal.  It's important to recognize what we are willing to do to put this deal together.  The sacrifice we are willing to make or the stakes we're willing to risk should clearly tell you if greed is driving your decision-making.

Every time I compromised my normal business rules or ethics to do a deal, I was being greedy.  The outcome of each of those deals has resulted in a loss or profits or a lengthy ownership of the property just to allow appreciation a chance to turn my deal around.

Once, I partnered a deal with someone I'd like to refer to as "the devil."  I knew that I shouldn't do business with this person, but the deal was soooooo profitable.  What a lesson.  Now, my guiding question to determine if my motivation to do the deal is greed is, "would I be willing to make this sacrifice or compromise if the profit were only $1,000?"  If the answer is no, then I'm compromising my business principals and I will then reap my due reward.

Love:  Realize that you are in love with a property when you are looking at it and thinking, "I could live here," "I would live here," "I want to live here," "someone I love could live here," or "I love what they've done with the place."  These thoughts will cause you to overpay for the property just to own it.  These are the emotions of a retail buyer.  If you are an investor, you should not be moved to pay more than you would normally pay for a deal regardless of whether you would live there or not.

If you want to live there, recognize that you will pay more for the home, spend more on remodeling it and probably end up with a home you have every bit of "retail value" into.  That's okay if you recognize that upfront and decide to move forward.  If that is not your goal, recognize that falling in love with a property will decrease your profits if it causes you to compromise what you would normally pay for the property otherwise.  Many new investors fall prey to falling in love with their property.

Desperation:  If you are low on deals, low on money or watching your contractor sit around with nothing to do on your dime, you may find yourself becoming desperate to purchase another property.  This emotion could cause you to purchase a property just to meet a quota, regardless of how profitable it may be.  I realize that you cannot afford to sit without inventory, however, you cannot afford to work for minimum wage or less. 

I recommend diligently seeking a new deal that meets your guidelines, while using your worker(s) to fix up your own home in the meantime.  This is especially so if you are paying your worker(s) whether you have property or not.

How can all of this be avoided?  Analyze why you are doing the deals you are doing.  Recognize why you've lost money on deals in the past.  Tie those reasons together, make a mental note of them and don't do them again.  You will be surprised how your losses can be tied to emotional decision making.

Most imprtantly, create a list of rules and ethics you plan to follow in order to do business.  If you want to be successful, you must have a smart and well thought through business plan.  Write it, read it, and stick to it regardless of the opportunities presented.  Most people are in such a hurry to do their first deal or their next deal that they will not take time to do the most important part of business ownership - "the plan."  I've said it before and I'll say it again...if you fail to plan, you plan to fail.

Having a plan will keep you focused.  When you fall off focus, you will lose money.  If you are presented with an opportunity that is not part of your plan, but you decide to look into anyway, you are falling off focus.  When you later decide to pass on the opportunity, you will have lost valuable time from your main focus.  You then lose even more time getting back on track.  Over the course of a year, these allowed interruptions will have cost you thousands of dollars.  When you begin to work from a plan, you will stay focused and earn more money.  Staying focused on a plan will help you to avoid making emotional decisions that cost you money.

Sharon Restrepo is a nationally known real estate investment expert.  15 years of experience has afforded her the ability to specialize in acquiring homes through short sales and wholesaling properties.  Sharon is the author of REIP the Rewards, Beginner's Fast Track, an introductory guide essential for all new investors serious about investing in real estate the correct way.