Catastrophizing in Real Estate: Why the Biggest Risk Isn’t the Deal
One of the things that is not really talked about when you consume real estate and investment media is managing the responsibility that comes with making larger and larger financial decisions. Like all things in this world, people experience a very wide spectrum of emotions and reactions in identical situations; real estate investment decisions are no different. Some people may be overwhelmed and anxious in trying to manage a highly profitable business, while others are barely bothered by the idea and process of going through bankruptcy. For many of us, the problem is that the reality of our business’s situation is rarely a reflection of how its owners feel about it. For me, the responsibility of managing such large sums can create anxiety and self-doubt that occasionally enters the realm of the uncomfortable.
For many of us, the fear, uncertainty, and doubt we feel are the actual forces holding us back. I, like many people, can sit down and go through a projection, build a model, and try to forecast the future. While some people will read that model and gain the comfort to sleep soundly at night, others will feel anxiety from the simple act of looking at seven-figure numbers that could soon become debt. For me, the uncertainty of a project before all the loose ends are tied down can become a monster of worry. Over the last couple of months, my stress and anxiety caused by the project have been very difficult to deal with . While I have a great deal of confidence in my track record and abilities, focusing on worst-case scenarios tends to be where my thoughts are sometimes trapped.
Catastrophizing is a bitch; it’s a cognitive distortion that prompts the thinker to jump to the worst possible conclusion, usually with very limited information or objective reason to despair. In reality, the worst-case scenario almost never happens. So many mistakes and bad decisions have to come together before any kind of predictable catastrophe can happen that most experienced operators can see it coming a mile away and can mitigate a majority of the issues along the way. Nevertheless, while one part of your mind knows full well there is a nearly zero percent probability that the worst case will actually happen, what you feel has little connection to what is observed.
On this project, I began the journey with the goal of being my own general contractor. As I spoke to different plumbers, electricians, and contractors, it quickly became clear that I was being bid higher prices than an experienced general contractor (GC). Sure, a GC will take a profit and cost more, but if they are skilled, they will create a great deal of value by leveraging their in-depth knowledge of vendors in the community and bringing in the price of the project at a competitive market rate. So, I made the decision to pivot. I decided to find some reliable and knowledgeable local GCs who might be interested in bidding on this project.
This decision would clearly slow down the project, add uncertainty about the cost, and introduce the typical “nothing in construction makes deadlines” bullshit. In hindsight, it is clear that I was setting myself up for many situations where I have incredibly limited information. Of the four GCs that I began with, the first informed me that he was transitioning to live in Florida but that I should rest assured he would be able to do a good job while being away 50% of the time; I’m not that dumb. He was off the list. The second, referred by a local plumber I was working with, didn’t realize that I had sent him the blueprints, lied about his progress, and proceeded to give me a bid that only included framing and demolition. That took nearly three weeks; he was off the list. The third, a reputable local contractor with an office across the street from the job site, started the process off well. We began by bidding on a smaller project, the demolition of the carriage house, to establish a baseline for our working relationship. The idea was simple: see how this GC handles interpersonal relationships and understand how their pricing ranks in the market.
During this whole process, the third GC had been sent the drawings and was offered a paper copy he could pick up from the architect, whose office was no more than 500 feet from the GC’s office. Like our second candidate, this GC was also dishonest about working on the bid for the larger project. I know this because he didn’t bother to pick up the paper blueprints, which he specifically requested, for over a month. In the meantime, I received a bid for the demolition. It was 10% higher than my other bid. As a person who prides himself on doing quality work, I rarely take the lowest bid. So, in this case, I picked up the phone to get a clearer understanding of why I would be better off paying the third GC an extra 10%. I’m no dummy, good people who do good work expect to get good pay. It is that simple.
In the process of trying to understand how the third GC creates value, the conversation went off the rails. It seemed like asking for an understanding of how this GC creates more value and justifies the price was a bridge too far. When I mentioned who the other GCs were, the response was immediate and angry: “I can’t beat that guy’s price.” I responded by explaining that I don’t generally choose the lowest bid but would like to understand how this GC views himself as creating more value for his clients. In his anger, he lost the plot and the opportunity. Better still, two weeks later, his partner called to check in on the status of the project, having no idea that his partner had blown the whole deal.
As someone who has worked in big corporations, small companies, and even government, I assume that people are generally competent. In this business, that is not true. Dealing with eight weeks of uncertainty about whether I would actually find a competent GC and get a reasonable price created a lot of stress. Moreover, without the GC contract in hand, I cannot get a loan from the bank to finish the project, causing compounding stress. All I needed was a decent GC and a reasonable price; after that, I knew everything would fall into place. In the meantime, I was left with the uncertainty of the path to completion. Were there other GCs? Of course, but in this small town there were only a handful that could take on this project. Anyone else would need to come in from out of town and likely does not have a relationship with the local code enforcement office, an in-depth knowledge of this municipality’s quirks, or an understanding of the local trades providers. In short, it costs more when the vendor is unfamiliar with the area and all their employees have to travel a significant distance.
During this period, I was so stressed out that it was difficult to keep up with my blog and stay level-headed without fearing catastrophe. After all, I have more than 25 years of experience finding, selecting, and contracting vendors for my construction projects. Losing three out of four candidates who were already vetted and supposedly competent made me fear I would find no one reasonable. You can always find someone who will do the job at an exorbitant price, but this is a business and it needs to make economic sense. I was losing sleep and worrying far too much. Sometimes, it is hard to escape the enormity of your responsibility when taking on life-changing multi-million-dollar investment projects. This isn’t a job where I would be losing the money of faceless or nameless investors; these are my investments, and my family relies on me. In reality, though, this does not make highly improbable worst-case scenarios any more likely, the cause of most of my stress was all in my head.
The fourth GC, though, was the real professional. We had already done a smaller project together, the new roof, so I had confidence we could get to a fair bid and sign a contract. Even here, the process was atypically slow; it probably took a month longer than it should have. That said, never let perfect be the enemy of good. So, while I have managed to work my way through the process, it took a significant toll. The only other times in my life that I experienced this level of stress were during one of the many “downsizing” events I experienced while working at one of my handful of corporate jobs. In reality, even in those difficult situations, I worked my way through to a good outcome. While I am clearly aware of my own track record of creating good outcomes, at times the lack of information makes the outcome feel unschedulable and the path to the goal feel like it has vanished.
Over the years, I have come to understand that part of why I am successful is based on my ability to understand what a successful outcome looks like and the steps it takes to reach the goal. As you plan any path forward, you always try to forecast possible obstacles to prepare for or prevent them. The problem is that there are so many points of failure along the path to the goal. Each has a low probability of happening, but you need to be careful to avoid them all. Sometimes a swarm of gnats can look like a giant beast, but a steady mind and a swipe of the hand can easily destroy that illusion.
At some point, you realize the stress is coming from the space between what you know and what you don’t. That gap starts to fill with noise if you let it. Projections turn into assumptions, assumptions turn into fears, and before long you’re reacting to outcomes that haven’t happened and, in all likelihood, never will.
At the same time, you start to respect that things will go wrong. Not because you’ve failed, but because that’s just how projects work. People drop the ball. Timelines slip. Pricing changes. The goal isn’t to eliminate that risk, it’s to make sure no single failure has the ability to take you out. You build options. You keep backup paths alive. You make sure you’re never in a position where one person or one outcome controls everything.
Over time, you start to see it differently. The anxiety doesn’t disappear, but it changes shape. It stops feeling like a warning sign and starts feeling like a byproduct of being in the arena, of operating at a level where the stakes actually matter. Most people never get there, not because they can’t, but because they’re unwilling to sit in that discomfort long enough to move through it. And that’s where the leverage is, not in avoiding uncertainty, but in carrying it better than the next person.
Ready for more insights from the field? I’ve made the expensive mistakes, so you don’t have to. Subscribe to get weekly strategies, real numbers, and unfiltered lessons from 25+ years of actual deals. No theory, no fluff, just lessons learned and what actually works when your money is on the line.