Advice for New Real Estate Investors Just Starting Out
Converting excitement about becoming a real estate investor into your first profitable deal is one of the greatest challenges for many new real estate investors.
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Notice I did not simply say “a deal” but instead a “profitable deal”? Anyone with a little money and a pen can do a bad deal. It has been my experience that most new investors mistakenly assume they have to pay their dues and settle for marginal deals because all the “Experts” have gotten the really good deals already.
New investors shouldn’t be so naive. Don’t assume great deals are impossible to find or have been scooped up by the seasoned pros. If you believe this, you will end up settling for marginal deals and you will lose out.
I hope this fact keeps you excited as you can be very successful in this market and in this business. However, it takes effort and a lot of time to learn your market and all the relevant parts of the investing lifecycle to secure great deals.
Unfortunately I don’t know any short cuts to learning your market and investing your time.
When I indicate real estate investing requires work and the investment of time from new investors, I hear a couple of potentially dangerous responses.
Does one of these responses fit you?
- This guy doesn’t know me or my market and thus his advice is not applicable to me or to my market!
- I get what you are saying but I am more intelligent than you are. I am going to find the cliff notes version on my market to reduce my effort.
- I am so excited I am just going to jump in the market and look at deals before the great opportunities vanish.
- I have a lot more money than time and experience so I am going to find someone in my market that knows the business and pay them to be my personal talent scout for deals.
- I will do all the work but I only have time to do the work from my computer screen and the only time I can find is between 10PM and 12PM.
- I have to get to work and understand the current market for listings, the rental rates, the average repair cost and most importantly, I need to go out and meet people and walk through properties.
Unfortunately five out of the six responses are risky in my opinion.
Response #1: This guy doesn’t know me or my market and thus his advice is not applicable to me or my market!
The statement is undoubtedly true as I don’t know you or your market. However, I am executing a working business model and I have done lots of deals. So instead of writing me off, you should see what pieces of information are relevant to you and your market. Certainly something from my past experience is valuable. Take what you want and ignore the rest.
Response # 2: I get what you are saying but I am more intelligent than you are. I am going to find the cliff notes version on my market to reduce my effort.
Real Estate Investing is a business process; if there was an easy way I would have found it. As I work full time, I invest in a market 3 hours from home and I travel 100K miles a year and spend more than 60 nights a year in hotels. If you chose to take short cuts, you will overlook something important — you will make an expensive mistake or you will simply never get started. I still go through the process all the time and I have 10 years of experience in my market, lots of relationships and have done many great deals. Never short cut the process or it will burn you.
Response #3: I am so excited that I am just going to jump in the market and look at deals before the great opportunities vanish.
This is potentially the most damaging behavior, because this attitude will lead you to pull the trigger on one of the first deals you see. Any guess what happens when you make a purchase decision without doing the work? Answer – You are gambling. The first deal is the most important and should not be left to luck or chance. If the first deal goes bad or even if it is just marginal, you will never do a second deal. Don’t let this happen to you. Step back, take a deep breath and perform the required due diligence.
Response #4: I have a lot more money than time and experience so I am going to find someone in my market that knows the business and pay them to be my personal talent scout.
When people react this way, they are choosing to lean on a Real Estate Agent or maybe a Property Manager to advise them on investment decisions. Part of the homework is meeting these people and getting to build your network, but don’t bet your hard earned capital on a single trusted source. If you don’t have time to invest in active real estate investing I suggest you investigate being a passive investor.
Response #5: I will do all the work but I only have time to do the work from my computer screen and the only time I can find is between 10PM and 12PM.
Being a committed night owl is not the best recipe for success with active real estate investing. You can do some of the baseline work from the computer but you need to get in the field and really understand your market. Remember real estate investing is a people business.
If you can’t commit the time and effort to understanding all the aspects of Active Real Estate Investing, you should at least consider the option of Passive Real Estate Investing. Successful real estate investors with proven models, frameworks and track records offer secure returns with downside protection to their passive investors.