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10 Things Nobody Told You While Getting Started In Real Estate

by Jaren Barnes on May 7, 2014 · 29 comments

  
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For this week’s post I wanted to give you an overview of the top 10 things nobody tells you when you’re first starting out in real estate.

You see personally, I was introduced to the real estate industry with unrealistic expectations and I have found other people that have had very similar experiences.

I was told that in one deal, I could make more money than I could make in an entire year at my day job and though this is true, most of the time wealth is built slowly and real estate is no exception.

The following is a realistic depiction of what to expect in real estate . I hope it helps you!

1. The Industry Is Known For Delayed Gratification.

Real estate can be one of the most lucrative industries to get involved in, however, in most people’s experience it takes time to build. Paydays in real estate can take months or even years (look at development for example) of planning and working to make them happen.

It is very common for things to fall through or to get delayed whether its the seller backing out, funding issues occurring, or renovation time turning out to be longer than expected.

Be prepared to learn patience.

Your hard work will definitely pay off, it just may take a little bit of time for things to pop!

2. There Are Well Over 100 Ways To Make Money In Real Estate.

Real estate is probably the most diverse industry in the world. If you think about it, it touches every component of human experience.

Where do you work? In a building.

Where do you live? In a house.

Where do you buy food? In a store.

Typically when people are first starting out in real estate, they feel as if they’re only option is to get into fixing and flipping houses or wholesaling, however this really isn’t their only option. There are tons of ways to make money in real estate!

For a complete break down, Brandon Turner did an excellent job of it here.

Related: Warning Newbies: Stop Wholesaling Now!

3. Real Estate Is Harder Than You Think.

A lot of the time real estate investing is associated with late night infomercials that promise a life of riches, fame and glory for no money down and with minimal work.

The truth is though, that this couldn’t be further from reality.

Real estate takes work and a lot of it!

In order for you to be successful in real estate, you need to be of the mindset of working hard now, so that later you can reap the rewards.

Real estate is a definite way of building wealth but if you want  “easy” and “get-rich-quick” I’d suggest you look elsewhere because you’ll  just simply end up getting hurt and losing money.

4. The Most Important Component Is Learning To Run The Numbers Accurately.

Something I regret is not taking more time to really grasp the numbers and common formulas used for determining and evaluating deals. The more math you understand, the better your assessments and ultimately, the better of an investor you are.

If you were to take 3-6 months when first starting off and do nothing but run comps and evaluate potential investment deals, it would give you a foundation stronger than most people have in real estate.

There really isn’t a greater skill set you could have in this industry.

5. Every Single Market Is Different.

A lot of people make the mistake believing that there is a “one-size-fits-all” approach to real estate and it simply isn’t true. Where I live in the San Francisco bay area, a lot of the time your investment strategy in neighboring markets needs to change drastically even if they are within 5 miles of each other.

To be success, you have to master your local market.

For example, bandit signs may be a strategy that would work in certain parts of Oakland, CA (Home to some pretty rough areas. My sister used to live there and one time there was a shooting right outside her house, on Christmas day no less!) but they definitely don’t work in Mt. View, CA (home to the Googleplex).

Real estate truly is a local game. Learn the quarks of your market first, then start implementing acquisitions.

6. Most “Real Estate Education” Out There Is Bogus And Simply A Means To Make Money Off Of You.

The best education I have found concerning real estate has always ended up being free of charge. Now, I’m not saying there isn’t some good material out there but the vast majority is just straight up fluff.

There are people out there selling education on real estate, who make more money on their education programs, than they actually do in real estate. 

Don’t buy into their gimmicks!

To be very frank with you, BiggerPockets has everything that you would need to know concerning real estate, 100% free. A better alternative to purchasing an education course is getting involved on the forums here, rubbing elbows with seasoned investors in your area that you find on the site and actually doing deals.

You have the power at your fingertips, use it!

7. You Don’t Actually Need A Real Estate License To Make A Living In Real Estate.

It’s a misconception sometimes that you have to hold a license to “do” real estate in any fashion. Though there are some major perks to having a license, real estate investing can be done entirely as a simple buyer avoiding all the training and costs associated with being an agent.

Don’t let things limit you!

If you want your real estate license but don’t have the time or money to invest in it right now, just get proactive about investing and learning the industry as a whole and worry about the credentials later.

Disclaimer: You cannot list or show a home or act in a fashion that depicts you as an agent if you are not licensed. Don’t deceive people!

8. The Place to Begin In Real Estate is Finding a Mentor in Your Local Market.

The place to begin for someone starting in real estate is to find a local expert in their local market, who can end up showing them the ropes.

What does that look like?

It looks like you giving them value and serving them with your time in exchange for knowledge.

It takes work to make it happen, but this honestly is the best thing to pursue first.

Related: How to Rock at Finding a Mentor in Real Estate: The Definitive Guide

9. It Can Take Over A Year To Begin Making Money In Real Estate.

Are you prepared for that kind of commitment? It’s definitely worth it if you are!

It legitimately may take a year of studying or a year of grinding, (or both) before you reap the fruits that real estate investing has to offer.

A lot of gurus like to sell the success but not the struggle behind it.

Success is hard, otherwise, everyone would have it, right?

The truth is you have to be willing to put in the work to get it. There are no easy roads, just better ones and real estate is one of the best!

Be committed.

10. Approach Your Real Estate Interest As A Business, Not As A Hobby.

The last thing I want to leave you guys with is to value your time and commitment to real estate. Structure it as if you had a boss who could fire you for screwing around and messing things up.

To many people get involved in real estate thinking it’s “fun” and then soon find themselves in trouble because they weren’t organized or serious enough.

Don’t jeopardize your opportunity! Treat your real estate endeavors with care.

Related: Overcoming Inaction, Direct Mail, and Becoming an Successful Wholesaler with Tim Gordon

 

What else would you add to this list? Leave your insights in the comments below!

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{ 29 comments… read them below or add one }

Giovanni May 7, 2014 at 12:00 pm

Great post @Jaren. Each of your 10 items deserves a whole post (or book). So many people are introduced to the business by some guru’s ‘Make a Million Dollars Overnight with No Money Down’ pitch so your 10 points are critical to deprogramming their minds and preparing them for the reality of real estate investment.

I would have put #6 first because gurus are in the guru business. Their current pitch may be the real estate flavor of the week but it just as easily be in franchising or multi-level marketing or any sector that they could spin into an easy money story. That said it is a great business model for the guru. Why not have people pay you 5 or 10k (or 15) to learn how to be your bird dog hoping that you’ll deign to do one the home run deals they scour the country for?

If I ever did a course it would be ‘How to Become a Millionaire Real Estate Guru’. Operators are standing by…..

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Jaren Barnes May 7, 2014 at 2:08 pm

Thanks for your insight Giovanni! and that “How to Become a Millionaire Real Estate Guru” course would do really well unfortunately lol. You’d make a killin’! Most people care more about making money vs. actually helping, you know?

I’m really glad you liked the post.

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Giovanni May 8, 2014 at 11:46 am

@Jaren, LOL, sad but true.

I’m really glad you wrote it.

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Eric May 7, 2014 at 12:13 pm

All very true. I have been to a few of the “hype me up” seminars, and they are great for that, hyping you up. They do open you to new ideas, which you can then get information on your own. They are also great for networking, but are very expensive.

I recent wrote a review on my blog about a Dave Lindahl boot camp I went to last month.

Many people think it is easy to make money. I have friends that say (stupid) things like this to me, “If you can find a deal where I can make a quick $50K, let me know about it”. Sure I will, after I put the money in MY bank account.

The truth be known, even if you gave most people a deal like that, if they were not already in RE, they would think about it for a month and it would be gone 29 days before that.

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Jaren Barnes May 7, 2014 at 2:10 pm

Very very true Eric. Everyone seems to agree that real estate is a great industry to get into, but they wait to pull the trigger until its too late.

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Kay Khan May 8, 2014 at 7:38 am

Eric,
I like your straight forward no BS style. True, if you did not earn it you won’t be able to keep it for long. That’s why most lotto winners die penny less. Thanks for your post.

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Jaren Barnes May 8, 2014 at 11:11 pm

Thanks Kay! What do you think people can do to get the character to actually want to “earn it”? What makes the difference between a lotto winner who looses it all and someone who changes the future of their family tree?

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Dan Ryu May 8, 2014 at 12:50 am

@Jaren

Re: #4 – Comps and Running numbers

- How would you recommend a newbie go about the process?

For example, when I was looking at houses in my area, I would use a site like Redfin or Zillow and compare the prices of recently sold and others for sale, trying to find ‘comps’ that I thought matched, with more emphasis on houses that sold. (Although I’d consider ‘Zillow’s estimates’, I generally tried to focus more on the objective data – sold for prices and for sale prices.)

And then, would you run numbers to see what your IRR would be and compare that to other markets? And then decide if the IRRs met a criteria (ie. 10% Cap Rate) that made the investment ‘safe’?

Is there a sample scenario you could describe or point me to an article that you think covers this the way you’d do it?

Thanks!

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Javier May 8, 2014 at 1:18 pm

I was wondering the same thing. I am also new at this, still looking for my first deal and learning a little about marketing. I think I am good with numbers in general, but the real problem is to understand what are the important numbers here.

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Jaren Barnes May 8, 2014 at 11:13 pm

Hey Dan great question! I’d actually suggest you check out J Scott’s books: The Book on Flipping Houses and The Book on Estimating Rehab Costs. You can find them here: http://www.biggerpockets.com/store

Those will get you up to speed on running the numbers better than any other resource I know.

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Dan Ryu May 8, 2014 at 9:17 am

@Jaren
I just happened to read Chapter 8 “The Flip Formula” of J Scott’s Book on Flipping Houses and he actually gives a step by step run down on how to do comps (thereby pretty much answering my previous question).

Basically, look for properties within a half mile / sold within 3 mos as ‘comparables’ – then either subtract or add from the comps ‘sold price’, depending on whether the house you’re looking at is more or less desirable based on different characteristics (ie. If target has more bedrooms, then add X amount to the sale price of the comp; if target has fewer bathrooms, then subtract X amount from the sale price of the comp, etc..) What your left with is an estimate of what your house should sell for (after rehabbing).

Anyways, seems like a pretty solid way to figure out comps!

If you have any further advice, I’d love to hear it, especially if you go deeper into IRR or ROI, etc.

Thanks!

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Jaren Barnes May 8, 2014 at 11:17 pm

Lol I wrote my above comment without seeing this! And exactly! In terms of further advice, I’d check out my other posts here on BiggerPockets:

http://www.biggerpockets.com/renewsblog/2014/04/16/finding-mentor-real-estate/

http://www.biggerpockets.com/renewsblog/2014/04/23/acquisition-domination/

I’m not trying to plug myself but I wrote these in the hopes of helping people, so let me know what you think.

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Dan Ryu May 9, 2014 at 3:04 am

Both are excellent posts!
As a newbie, I love having step by step directions on doing things. It helps one feel a sense of control which I think is something that holds people back – the fear of the unknown.

The mentor post – I learned the additional technique of asking, “So what’s your biggest problem?” I hadn’t read that elsewhere so that’s awesome.

I like the detailed instructions on IFTTT as well as how to utilize Craig’s List better.

Thanks for all the great info. You’re definitely helping to make a difference!

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John Souerbry May 8, 2014 at 10:31 am

Re: #7 – investors can act as their own agent to list and buy property without a license as long as they are a principle in the transaction. A real estate license is only required when you are providing brokerage or property management services for someone else.

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Jaren Barnes May 8, 2014 at 11:18 pm

Yea for sure! :-) Thanks for the insight and clarification.

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Travis Daggett May 8, 2014 at 11:01 am

Great article! A must read.

Thanks

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Jaren Barnes May 8, 2014 at 11:18 pm

Wow man, thank you!

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Marlene Diaz May 8, 2014 at 12:25 pm

Jaren:

Great advice. I especially liked item #9 It Can Take Over A Year To Begin Making Money In Real Estate.

I’ve been researching/studying on BP for months, and also studying for my RE license online. I feel more prepared than I did when I started, and I still have much more to learn. In contrast, a couple I’m friends with just purchased & rehabbed a grade C property, next to a war zone. They’re trying to sell in a rental neighborhood. They’ve already had two price reductions, with no takers. The lesson here is – Conduct your due diligence (#4 The Most Important Component Is Learning To Run The Numbers Accurately.) It may take longer to find a good deal, but that is the goal.

Cheers

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Jaren Barnes May 8, 2014 at 11:20 pm

Exactly Marlene! What do you think we can do to help people avoid jumping in blindly like your friends did? I mean they could really get financially hurt without being properly prepared.

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Bob Luce May 8, 2014 at 12:40 pm

RE #7 John is correct. If the home is yours you can advertise and sell it yourself (at least in my state). If you plan to sell yourself it’s money well spent to sit with a Real Estate lawyer for an hour or two. They can set you up with the contracts you will need.

Bob Luce – Iowa Realty

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Jaren Barnes May 8, 2014 at 11:21 pm

Thanks Bob and I agree!

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RJ Bryan May 8, 2014 at 8:52 pm

Nice!
#4 is awesome!
“If you were to take 3-6 months when first starting off and do nothing but run comps and evaluate potential investment deals, it would give you a foundation stronger than most people have in real estate.”

Anyone starting should read this article- at least this line.

Thanks

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Jaren Barnes May 8, 2014 at 11:22 pm

Man thank you RJ. I really wanted to help people new to the industry avoid the mistakes of so many out there.

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Sara Cunningham May 9, 2014 at 8:30 am

Jaren some really solid advice, and very well written. Makes so much sense and you manage to condense a whole lot of info into the article too. I,m not a newbie but must admit I didn’t really do enough work on the numbers side at the beginning,or enough now either. I think I have been really lucky and not been burned too badly. We did rehab a house in a C neighborhood and couldn’t sell it so we ended up doing Owner Finance on it which worked out great. Didn’t know about Bigger Pockets back then either just managed to research and figure out options as I went along. This forum is awesome for picking up ideas and networking. Thanks for the post.

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Jaren Barnes May 10, 2014 at 8:04 am

Yea Sara, isn’t BiggerPockets incredible? I love it! Thank you!

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Jason F May 9, 2014 at 4:04 pm

Hey Jaren, Didn’t I run into you at a house in Concord last summer? The homeowner called both of us (competitors) back from our marketing letters and scheduled us to view his house at the same time? You look kinda familiar.

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Jaren Barnes May 10, 2014 at 8:01 am

Hey Jason! I don’t think so, I’ve primarily been working in Alameda and Santa Clara county, but if your local I’m totally down to meet up! PM me if you want to do coffee sometime!

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jasonmerchey May 9, 2014 at 6:16 pm

Nicely done!

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Jaren Barnes May 10, 2014 at 8:28 am

Thanks! :-)

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