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10 Rules for Investing in Real Estate Without Looking Like an Idiot

by Brandon Turner on June 7, 2014 · 35 comments

  
Real Estate Investing

Sometimes I do stupid things.

I can’t blame it on anyone else… it’s just me. Sometimes I’m just an idiot.

  • I say the wrong thing at the wrong time and look foolish.
  • I buy something awesome and expensive… and never use it (cough… my iPad.)
  • I forget to call my family on their birthday.

Dumb, I know.

However, most of these things are fairly mild compared to the idiotic things I’ve done as a real estate investor. The following list may seem like I’m poking fun at others but, in reality, this is a reflection on the idiotic things I’ve done in my investing career.

But I want better for you.

I don’t want you to look like an idiot. I want you to succeed and live the life you’ve always dreamed, so allow me to share with you my best tips for investing in real estate without looking like an idiot.

10 Rules for Investing in Real Estate Without Looking Like an Idiot

1.) Do Your Homework

One of the best ways to look like an idiot when investing in real estate is to jump in before you know what you are doing. You saw it on TV, you read it in a blog post, and suddenly you think you are the next Donald Trump and… well, you end up looking like Rosanne Singing the National Anthem.

It’s not pretty.

So take the time to learn your craft, do your homework, read the books, listen to the Podcasts, and get yourself some good ‘ol fashioned American edu-ma-cation!  (just… try to avoid the $9997 course… you don’t need it.)

Related: BiggerPockets Presents: The 21 Best Real Estate Books Ever

2.) Know Your Niche (and Strategy)

When getting your education, it’s overwhelming.

There are a lot of niches (like single family houses, multifamily, commercial) and a lot of strategies (like flipping, wholesaling, landlording) that you could learn about… and you’ll probably want to.

This is a major struggle for those who love the BiggerPockets Podcast. Every week there is a new, exciting niche or strategy to explore. However, trying to do everything is going to make you end up looking like an idiot when you get stuck trying to learn everything, do everything, and wind up going no where.

Instead, focus on one niche as long as you can. Master it, then expand.

3.) Don’t Invest in Something You Don’t Understand

Want to know who isn’t an idiot?

Warren Buffett.

Yep, THE Warren Buffett. Like, “most-successful-investor-in-a-billion-years Warren Buffett.”  What made him so successful? Well, if you were to ask him, here’s what he’d say… (because, he said this:)

“Never invest in a business you can’t understand.”

I think he’s right, and this ties nicely into #2. Don’t invest in something you don’t understand. Instead… go understand it first, then worry about investing in it.

4.) When in Doubt, Partner Up

Let me ask you a very simple math question.

Now… wait, come back… I promise, it will be easy. Just settle down, champ.  Just answer the following question:

Which is better:  

A.) Getting half of a great deal or

B.) nothing,zero,zilch? 

Hopefully you answered “half of a great deal.”  It’s the obvious answer, yet so many wannabe investors choose option B. They think “I can do this all by myself.” Yes, you probably could. No, you probably won’t.

My good friend Ben Leybovich is working to syndicate an apartment deal right now. Ben’s a smart dude … one of the smartest I know. However, when he decided to jump into 100+ unit apartment complex syndication, he didn’t do it alone. He aligned himself with one of the other smartest dudes I know, who is an expert on syndicating apartments.  Yeah, he’ll be splitting the deal, making less than if he were to do it alone. However, he’s going to syndicate a 100+ unit property while the rest of us are playing Pokémon on our Game Boys. Sorry… 90′s flashback. I mean Angry Birds on our iPads.

So if you want to avoid getting egg all over your face, partner up with someone who knows what they are doing. You can do all the hard work, they can bring the expertise, and together you’ll find incredible success.

5.) Don’t Over-Extend Yourself

Here’s a fun way to look like an idiot: losing everything you’ve worked so hard for.

If you buy more than you can afford, more than you can manage, more than you can handle in an economic downturn … chances are you’ll end up looking like an idiot when your house of cards comes crashing down.

Keep your ambitions in check and don’t bite off more than you can chew.

6.) Don’t Act Bigger Than You Are

Here’s a fun one. We all know that guy… he walks into the forums and says “I’ve got bulk deals in all 50 states and I’ve been investing for 12 minutes.

Yeah, right. And my Prius runs on the music of Michael Bolton.

Whether you are just starting out or have been investing for years… be real.

Be yourself.

Admit to what you know and what you don’t know. Then go back to step one, get educated, and become the bigger person you want to be. But until then, keep your ego in check and avoid looking foolish.

7.) Listen to Those More Experienced Than You

This is not a new game.

People have been investing in real estate for thousands of years, and even more importantly- very little has changed in the past 100.  So to avoid looking like an idiot, don’t dismiss the advice of those who have been investing for years. They’ve seen both the ups and the downs in the market, and can see the real estate history like a hot air balloon over a parade while you see it from the street: one float at a time.

8.) Don’t Spend Before You Earn

Yes, you are going to be successful someday.

I believe it, really.

However, don’t start spending your money like the Jersey Shore idiots kids on spring break when you are trying to build your business. The reward should come later, but in the beginning, you are going to need all the capital you can get. So keep living below your means, save your money, and build something great for your future.

9.) Don’t Fudge the Math

It’s very tempting to tweak the numbers to make it work.

  • Oh… I think these units could actually rent for $900 a month, even though the exact same units are renting for $700 across the street. They don’t have this cute purple trim!” 
  • “I think we can sell this house in 30 days, so it’s okay to spend the extra $5,000 on those countertops! They are just so stylish!”
  • “Well… the comps only justify a resale value of $120,000… but let’s say $130,000 because it’s going to be just so adorable!”

That’s fudging the math. It’s stupid, it’s dangerous, and it’s going to make you look like an idiot in front of your partners, investors, spouse, or lender when it all comes crashing down. Stick with conservative math. Err on the side of caution. Run your numbers through the BiggerPockets Property Analysis Calculators and make sure you are accounting for all the expenses.

10.) Know Your Why

Finally, to avoid looking like an idiot, always know your why. Keep the main thing the main thing. Don’t get so wrapped up in the business of real estate investing that you forget why you are choosing to live this life.

For example, I am investing in real estate so I can make enough passive income that I can spend unlimited time with my family and future children.  I don’t do it to get rich, to buy nice cars, to see my bank account climb. I do it for my family. So… if I’m ignoring my family while trying to build my business, I’m sacrificing the very goal I’m trying to reach. That’s me, being an idiot.

Know your why. Don’t be an idiot.

Conclusion

No one wants to look like an idiot, but at times – we all do. It can’t be helped. You will forget birthdays, you will buy stuff you don’t need, you will say the wrong thing at the wrong time.

It’s life.

Luckily, you have the BiggerPockets community to help you avoid those idiotic moments in your real estate investing life.  With over 180,000 members, there is nothing you will go through that thousands of others have not been through. So stick close, continue to learn, and continue to help others avoid looking like an idiot as well.

Finally, I would look like a bit of an idiot if this post didn’t have some incredible comments below! (It’s called social proof, baby, and it’s the diamond rings on this blog post.) So, if you would, help me out and let me know which number above resonated the most with you, or share one that I may have missed. Also, of course, clicking that friendly Facebook Like button below would make my day as well!

(Click Here to Tweet This Post!)

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{ 35 comments… read them below or add one }

Deborah Burian June 7, 2014 at 11:36 am

All so, so, true. But fish out the ipad and learn to use it as the wonderful tool it can be :-).

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Brandon Turner June 7, 2014 at 9:06 pm

Hah today I used it all day … the most I ever have. It was alright :) Thanks for the comment!

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Jeremy Baker June 7, 2014 at 12:03 pm

Great post and great info. As a beginner, it’s tough to narrow down to a specific niche. What we (my wife and I) did was to focus on a couple niches to come up with an strategy that provides us a couple of different avenues to pursue when we see a potential deal.

Now I may just have to go out and buy a Prius just so that I can say ,”My Prius runs on the music of Michael Bolton!”

As for the Rosanne Nat’l Anthem, I think Carl Lewis gives her a run for the best of the worst: https://www.youtube.com/watch?v=3kU9XwcOIfI&feature=kp

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Brandon Turner June 7, 2014 at 9:08 pm

Thanks Jeremy! I stumbled around a lot when starting out, unsure of what niche to get into. I don’t think that’s too terrible, but it’s nice to have a plan! And yes… that was pretty terrible version of the National Anthem! Now go get your Prius!

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Greg Jackson June 7, 2014 at 12:25 pm

Brandon,

I see your Prius does not appreciate the music of Michael Bolton. That’s a shame, because Michael’s music is now being successfully used to drive away Somali pirates!

:)

Nice post!

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Brandon Turner June 7, 2014 at 9:09 pm

Hah yeah, you know… my Prius prefers the sweet music of Kenny G these days :)

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Eric June 7, 2014 at 2:31 pm

I have purchased a lot of properties from people that made many of those same mistakes…

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Brandon Turner June 7, 2014 at 9:09 pm

Same here! Funny, I gave a speech to a bunch of landlords today and made that same point. Nearly all of my properties came from failed landlords. It’s kinda sad!

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Ben Leybovich June 7, 2014 at 3:17 pm

You forgot one – when you need answers Just Ask Ben hahaha

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Brandon Turner June 7, 2014 at 9:10 pm

Hah! Funny man :)

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Nzinga June 7, 2014 at 7:08 pm

Great article. Being in the pre-investor phase for six months I’ve definitely learned a lot and still have yet to purchase. I guess the biggest thing I’ve learned is real goals are never as flashy as they are in your mind and to keep moving forward!

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Brandon Turner June 7, 2014 at 9:11 pm

Keep plugging away and learning – you’ll get there! No need to rush!

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ZInga June 9, 2014 at 7:14 am

Thanks! It’s encouraging two more showings on Wednesday!

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Sharon Vornholt June 7, 2014 at 8:24 pm

Brandon – That is a GREAT list.

There are just so many ways you can muck things up in this business, but a whole lot of those things on that list have to do with “being a pretender”.

You were right. Don’t pretend you know things you don’t know, and don’t pretend to have more money than you have so you can look like someone else that actually has the money. Those will really get you in trouble. In other words just be yourself and learn to be OK with that until you are finally where you want to be.

Sharon

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Brandon Turner June 7, 2014 at 9:12 pm

Thanks Sharon, I appreciate the comment. Great point you just said… ” just be yourself and learn to be OK with that until you are finally where you want to be.”

Thanks!

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Henry Nguyen June 7, 2014 at 10:55 pm

Always enjoy the self depecating humor Brandon, the tips weren’t bad either ;)

I’ve always wondered if all the bloggers on BP have big secret scoreboard that tallies up all the comments. Somehow I think Ben is in the lead.

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Brandon Turner June 8, 2014 at 8:56 am

Lol, if there ever is a list compiled, I’m sure Ben is definitely in the lead! :) He sure knows how to push those buttons!

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Ben Durtschi June 8, 2014 at 9:51 am

Great article! “Fudging the numbers” was what hit me the most. I’m terrible at that. Luckily I’m still a beginner, so I haven’t been burned by this yet, but you’ve helped me realize that I need to be more accurate with the numbers before diving in to real estate. Thanks!

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Brandon Turner June 9, 2014 at 3:40 pm

Hey Ben… that’s the one that’s hurt me the most over the years. Fight it! :)

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Tim Edwards June 8, 2014 at 9:54 am

Great points! What I love about BP in general, and especially the podcasts, someone BRAND new, like me, begins to see a very basic common thread and that thread is, there is no magic trick. RE is all about basic homework, educating yourself on (very) basic principles, and then acting on that new found knowledge. Thanks to you and Josh, and all your podcasts (yes I’ve only got 8 or 9 left to be 100% through them all), I have realized I TOO can do this, and do it well.
SO glad I found BP

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Brandon Turner June 9, 2014 at 4:09 pm

Thanks Tim! I love that about BP also! We’re happy to have you here :)

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Ahmed Moussa June 8, 2014 at 3:57 pm

Great post! Definitely a good gut check for a newby investor like myself. Spot on with staying the course with a niche that we understand, especially in the beginning. Your guys’ podcast just tempts us into every corner of the market :) I like the big why too – family!

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Brandon Turner June 9, 2014 at 4:13 pm

Thanks Ahmed!

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Gualter Amarelo June 9, 2014 at 6:12 am

I think the points you made about keeping your ambition in check and not biting off more than you can chew are extremely good points. I’ve bought 2 a 3 and 2 fam this year. They are all fixed up and rented, which is the whole point, but it was all too easy and I feel like I could take on another 1 or 2. The biggest problem with that temptation is that the funding just doesn’t support me taking on anything else this year… so it’s a very sobering and an annoying concept to be sitting on the sidelines trying to build up more capital!

You should write a post on how you deal with the downtime between gaining capital without feeling like an idiot!

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Brandon Turner June 9, 2014 at 4:15 pm

Thanks Gualter,

And that’s actually a good idea for a post! :) For me, I just find others who have the money and do it anyways :)

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tracy June 9, 2014 at 7:37 am

thanks now i can just go be myself on my first deal here is hoping all goes well please be with us Jesus

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Brandon Turner June 9, 2014 at 4:16 pm

Best of luck Tracy! Stick close to BP … there are a lot of mistakes that can be made!

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Greg June 9, 2014 at 12:13 pm

After about 6 months of research i think i’m still being caught up in “following the shiny object.” Every time a podcast comes out i want to to THAT! I know I need to calm down and at least pick one or two niches to learn well. My why is the same- two small people who I spend little time with because of my job/long commute. Soon they will be all grown up and if I keep doing what i am now i will regret it. Thanks for the Reminder guys. Is two niches all that bad? Your podcasts need to explore more of the negative sides of investing so we all don’t get the “shiny object” syndrome….how about a few people struggling….everyone on there lately has been kicking …something….

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Brandon Turner June 9, 2014 at 4:17 pm

Hey Greg, I know the feeling, it happens to me also. And 2 niches arent’ all that bad – but you can only do one first investment, so I’d focus on that first. Hope that helps!

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James Frazer June 9, 2014 at 7:35 pm

Thank you Brandon,
Great article and some very good points, I will be keeping the “Idiot” out of my investment strategy.

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Brandon Turner June 9, 2014 at 9:43 pm

Hah good luck James! Somehow,the idiot keeps coming back into my deals. I can’t seem to get myself…er… him… out. ;)

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Leigh Ann Smith June 12, 2014 at 1:26 pm

One of the things that has made me a bit uncomfortable with getting into real estate investing is the focus that many investors seem to have on becoming wealthy for the sake of being wealthy. Your emphasis on understanding your priorities (“the why”) and not trying to look like a big shot was very refreshing!

And this isn’t quite an idiot mistake, but it’s a dumb one I have made….

Don’t start randomly listening to the podcasts without writing down which ones you’ve already listened to!

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LaShelle Smith June 13, 2014 at 2:51 am

Thanks for the post! I think knowing my why is the most important thing to me. Remembering what is most important to me keeps me going through the obstacles. Reading just that one tip helped (re)focus me so thanks again!

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Karen June 17, 2014 at 6:44 am

Thanks for the useful and fun article, Brandon. The shiny object thing happens at REIA meetings too — in my first 2 meetings I was exposed to short sales and wholesaling, but — I just want to be a buy and hold person. I can see your eyes following the shiny object every pod cast when you say, “I want to try that / do that… I’ve been thinking about doing that.” :-)

How has the work-life balance worked out for you? Do you feel that it has gotten more complicated as you have progressed? You sound like a busy guy who also gets out to play once in a while.

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Brandon Turner June 17, 2014 at 9:34 am

Thanks Karen! Yeah, there is so much I wanna do with real estate – I have to remind myself I have 70-or-so years left to do em all! :)

As for work-life balance – it’s a struggle still but it’s getting better all the time I feel. I tend to take on too many projects (BP, investing, writing a book, etc) but most of that is by choice because I love to do those things!

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