Recently on Facebook there was a viral post making its way around news feeds in which people were sharing the 8 or 9 or 10 things that people “might not know” about them. And of course, since my mind is unable to think about anything but real estate, it got me pondering some of the things that new investors “might not know” about real estate investing. So, over the next few blog posts I’m going to share with you a few simple truths about this business that you NEED TO KNOW if you want to be successful.
Number 1: Everything doesn’t go right all the time.
“Come what may, all bad fortune is to be conquered by endurance.” ~Virgil
After you attend a seminar, or watch a late-night infomercial, you may get the idea that real estate investing is a FOOL-PROOF way to make money, and that every house is a gold mine waiting to happen. That may be a good story to help sell books and courses, but it isn’t exactly a fair representation of reality. While I’m a very optimistic person, and always try to see the good in every situation, the fact of the matter is that some deals just don’t work out the way you had hoped.
A few years ago I purchased a home from a motivated seller whose wife had some kind of terminal disease, and they needed to sell quickly in order to get her the necessary treatment she needed. We came to terms on a price that everyone was happy with, and it seemed like all was well with the world. That is, of course, until the title search revealed an additional lien that had to be paid off. It cost us a few thousand more dollars to purchase the home, and by itself would have been just a bump in the road. Unfortunately, it was just the beginning of a long trail of tears.
Without boring you with the entire story, let’s just say that we could have been filming “The Money Pit, Part 2”, except this sequel starred me instead of Tom Hanks. Everything that could have gone wrong did go wrong, and we were looking at a very meager profit once we finally got the property listed. And then came the septic inspection. After another $7,500 to switch the faulty septic tank over to sewer, we were able to BARELY squeeze out a profit and move on with our tail between our legs to the next deal.
The moral of the story? That “testimonial” didn’t quite make it to our “Success Stories” page on the website, nor would it have been featured on the late night infomercial. The simple truth is that renovating houses is fraught with risk. It should only be approached in a very conservative manner, with all of the necessary inspections and meticulous number-crunching that you would do for any major investment. Though I’ve had PLENTY of success stories renovating homes, and have made a ton of money investing in real estate, the truth is that everything just doesn’t go right all the time.
This is the reason why I admonish my students to always start their investing careers with wholesaling, which has virtually zero risk. This allows them to learn the ins and outs of the business, and build a war chest of money with which to invest, without putting themselves and their families in a vulnerable situation. It’s also why I always tell new rehabbers to be overly cautious on their FIRST rehab….because it is imperative that it’s a HOME RUN. If it’s not a SLAM DUNK (tired of the hackneyed sports analogies yet?), it’s very unlikely that you will ever get to deal #2, 3, 4 and beyond, which could end up costing you hundreds of thousands of dollars.
Need a perfect example? I recently ran into a former investor working at a minimum wage job. He had been super gung-ho when he first got into investing, and was so over-zealous to get started, that he made some ill-advised decisions on his first 1 or 2 deals. I had advised him AGAINST buying both of them, but he felt that they were viable investments. Unfortunately for him, he was incorrect, and those “errors in judgment” were the last 2 properties he would ever buy. Due to that experience, he and his wife are now COMPLETELY turned off to the real estate business, thus causing him to miss out on the opportunity to create an enormous income and vast amounts of wealth for his family.
Please don’t misunderstand this word of caution as a negative commentary on real estate investing. I have had way more successes than failures in this business, and believe it is undoubtedly the best (and fastest) way to build wealth. I absolutely LOVE the real estate investing world, and my family has enjoyed the fruits of it for many years. I just want YOU to love it as much as I do, and to experience the same level of success (and well beyond!). But if you go into business with the wrong mindset and unrealistic expectations, you could exit just as quickly as you came in. And that would be a travesty.
So keep LEARNING, READ a lot, LISTEN to your mentors, ASK questions, SAVE your money, and BE PREPARED for some things to not go right some of the time. If you commit to those principles, you will be well on your way to a tremendous amount of success and prosperity in the real estate investing business, and any other entrepreneurial endeavors you may pursue. Here’s to your success!