I quit my corporate job in 2005 to pursue real estate fulltime. I had listened to Carlton Sheets’ “Zero Down Investing” course multiple times the year leading up to my departure from my day job while trying to learn as much as I could. Flipping through study guides and reading real estate books only served to increase my appetite for this industry. I remember the excitement of learning these concepts with the hopes of one day putting it all into practice.
My entrance into real estate involved training from a start-up company out of Seattle, WA. They had developed a training system for producing real estate transactions that involved pairing investors and lease-purchase tenants. The idea was that an individual who couldn’t qualify for financing would choose a house and the investor would buy the property and lease-purchase it back to the tenant for a higher amount. The tenant would then go into a credit counseling program with the intention of improving credit to the point where he or she could qualify for a mortgage and buy the property back from the investor. I was able to carve out profit by putting the property under contract (with a willing lease purchase tenant) and then assigning my interest to the end investor with a built-in assignment fee of a few thousand dollars.
The model worked great for the first couple of years, but gradually became more difficult as the industry changed. In just 2 short years, my program began to fall apart for a number of different reasons. First, investor financing went from 100% financing to 95% to financing to 90% financing all within less than 24 months. Investors who had been used to getting unbelievable leverage were less inclined to buy investment properties with increased down payment requirement. Second, banks began to tighten on the assignment fee we had written into the contract, and no longer wanted to allow our investors to finance this fee into their loan. Third, the financing options available to our lease-purchase tenants began to get very difficult as subprime mortgages started to go away and FHA financing standards got tighter. In addition to all of this, investors began to see the real estate market slow down and were no longer willing to bank on appreciation. Values began to grow stagnant and real estate activity on a whole gradually began to taper off.
Fast forward to today and I can tell you that my first 2 years in real estate gave me an education that no real estate course could have taught me. While I learned the ins and outs of contracts, marketing, tenant placement, etc. – the number one lesson I learned was the importance of changing with the market. None of the books or courses I had read ever mentioned anything about the speed at which things can change and the need to adapt to market changes. It took constant head scratching and strategy sessions to make sure I could continue to run a business that was relevant, applicable and profitable in an ever shifting real estate industry.
If there was one lesson I would pass on to new investors (especially those who plan to do this full-time) – don’t ever get comfortable in your approach to real estate. From lending guidelines to inventory shortages to increasing competition, etc., there will always be changes that challenge the way we approach real estate. To stay in this business, it takes creativity and a drive to know your market and stay ahead of the curve.My Experience Investing in a Changing Real Estate Market by Ken Corsini