10 Shocking Truths About Real Estate Investing
Stop the hype already.
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We don’t need any more big promises, big cars, or big hair – and we really don’t need any more infomercials…
We need action.
We need actionable steps to get moving.
I understand the importance for motivation. I love motivation. I need motivation. What I don’t need is hype. To briefly explain the difference:
- Hype: Exaggerated expectations of an outcome based on … um…. one or two special cases.
- Motivation: Realistic possibilities for an outcome based on past performance of many others.
The reason I like motivation is because it tells me what is likely possible if I follow a certain plan. Hype tells me what was possible for some guy in Timbuktu if I get as lucky as he did.
Motivation tells me I can do this. Hype tells me I “will” do this, easily.
Telling the (Sometimes Shocking) Truth
The purpose of this post is to sort out the differences for you and share ten truths about real estate investing. I call it “shocking truths” because for those coming from the world of hype, these truths are shocking! For those of you have been investing for years, perhaps these truths are as evident to you as gravity. However, if you are coming to BiggerPockets after researching some of the hype you’ve heard about with real estate, maybe these points will be tough pills to swallow. At BiggerPockets – we are all about stopping the hype, leading with truth, and educating through our peers. So without further ado, here are ten shocking tips about real estate investing.
1.) Real Estate Investing is Not Always Easy
Whoa! Right out the gate, I hit you with one of the meanest things I could say. Perhaps you were expecting something softer to start, but if you don’t understand this point at the start – none of the other truths are going to matter. Go ahead, say it with me…
Real estate investing is hard work.
It takes skill, determination, perseverance, and sometimes even a whole lot of sweat and tears.
You don’t hear this very often in the “hype” – but the fact is, every investor who has ever built lasting wealth through real estate has done so by hard work. If you aren’t willing to put the time or the work in – look elsewhere to fulfill your investing plans.
That said, there are varying levels of “hard work,” depending on your strategy or need for profit. If you are just starting out and have no money, experience, or contacts but are looking to replace your full time income: it’s going to be extremely hard work. It’s going to take a lot of reading, a lot of networking, a lot of late nights and early mornings. It’s going to take passion. Do you have that passion?
However, if you are just looking to get a solid 7-12% return on your cash investment and don’t need to suddenly make money out of thin air, the work is much easier – though it still can be hard work when things go wrong. Private lending, notes, REITS and other investments still have their due diligence required.
2.) Real Estate Investing Isn’t Free
Real estate investing is not free. Though the hype loves to talk about “no money down” investing, the fact is – it does take something to invest in real estate. Whether it’s money, time, knowledge, or experience – you are going to need to bring something to the table. The more you can bring, the easier it is going to be.
For example, if you can bring a lot of knowledge and time but no experience or cash – it can be done but it will be tough. If you can add “experience” to that, it becomes increasingly easier. If you can bring all four – it’s the easiest. So work to build up all four areas of your real estate arsenal.
If you are lacking at all four – at least start building your knowledge here on BiggerPockets. I’d recommend reading through The Ultimate Beginner’s Guide to Real Estate Investing.
3.) Real Estate Investing is For Math Nerds
I was a co-captain of my high school Math League. Each week, we would take tests for fun, competing with other schools to see who could get the best score an math tests.
was am a nerd.
You don’t need to be that big of a nerd. It doesn’t take calculus math to figure out cash-flow or return-on-investment. However – it does take math. It does take the dedication to sit down and really learn how the numbers work in relation to one another. It takes the dedication to learn the vocabulary.
In high school, I wasn’t a math nerd because I had a good mind for math. I actually think I had a pretty terrible mind for math and figures. It didn’t always come naturally to me. However, I had something more important: dedication. I would sit at my kitchen table and work on my math homework because I knew I needed to understand the concepts being explained. I would stay after school for extra help understanding my homework. I did everything in my power to learn the math.
You don’t have to be good at math. You have to be dedicated to learning the math though. As I said earlier – it doesn’t take calculus level math. For a great book on getting started with real estate investing math, get a copy right now of Frank Gallinelli’s What Every Real Estate Investor Needs to Know About Cash Flow… And 36 Other Key Financial Measures. (That’s an affiliate link there… so if you buy through that link- you’ll be helping support BiggerPockets!)
4.) It’s also a People’s Game
While real estate investing needs to bring out the inner-nerd in all of us, it also needs to bring out the inner-prom king or queen in all of us as well. Investors need to be social.
Whether you are dealing with an emotionally devastated motivated seller or a high-strung real estate agent â this game is a people game. The better you can handle people, the better you'll be as an investor.
If you are just beginning, this is even more true. You need to network. You need to meet people who can help you, and you aren’t going to get there by sitting on your computer in the corner of your dark room (well, maybe if you are using the BiggerPockets Forums to network, that might be possible!) Right now – the best thing you can do to get started is to build connections.
Don’t be afraid of getting out there and shaking hands, telling people what you do (and what you want to do) and meeting people who can change your destiny. It’s not going to happen by itself – you need to take action. Start building relationships today for the future you want to create tomorrow. (Tweet This Quote!)
5.) Real Estate Investing is Slow and Boring
Did he really say that!?
Yes. Building wealth through real estate investing is slow and boring – and that’s a problem for a lot of investors. Yes, flipping and wholesaling can be a lot of fun but I’m talking about true passive wealth building. Building serious wealth is not complicated and does take time – so a lot of investors get bored and start trying to do different things to get more excitement (and money) today. Greed enters the picture and before you know it, investors are paying $400,000 for a $100,000 property that cash flows negative $3000 per month. Like that, it’s 2006 all over again!
Investing for stability takes time and can seem boring at times. It’s not going to make you millions of dollars overnight, but it can build up over time to make you a lot of money for later in your life. But for a step by step – and boring – plan for building wealth, check out my article “How to Make a Million Dollars in Real Estate.”
6.) It Doesn’t Need to Be a Job
Soooo many individuals come to BiggerPockets everyday and declare that they want to be an investor and quit their job. However – what most people fail to understand is that investing doesn’t have to be a full time job. As I mentioned in the previous section – there are ways to invest in real estate for fun and profit – like flipping and wholesaling. However, these are day-jobs like any other that require trading time for dollars. While there is absolutely nothing wrong with the notion of trading time for dollars – it is not the only way.
Find a job you love.
If your passion is in helping people – be a nurse or a teacher. If your passion is software – then go work for Apple. If your passion is property – then go flip houses. But you don’t need to be a full time real estate investor in order to build wealth through real estate. As I mentioned above, real estate investing for building wealth is a slow and boring process but it is not complicated (though, again, not necessarily easy. There is a difference.) Find a job you love, and begin building wealth through real estate investing. It’s the best of both worlds and you’ll find the most happiness doing the thing you love.
What excites you and would make you excited to get out of bed and get to work? Find that and follow it.
7.) You May Lose Money
Correction: you will lose money.
The fact is – most real estate investors lose money. It’s not something we plan for, but it’s something that happens. Real estate investing is a never-ending learning process and often comes with a hefty tuition bill (Tweet this Quote!)
We try to create systems that prevent against loss, but sometimes it is inevitable. It doesn't even mean you will lose money on a total investment â but you will lose money in the day to day details. Sometimes you'll make bad choices and sometimes other's will make bad choices that affect you. Perhaps a contractor will rip you off and skip town. Perhaps a new Section-8 rule will make your income drop by 20%. Perhaps you’ll buy in the wrong time of the market and your values will plummet. Maybe a storm will hit and destroy your roof. Whatever the cause – you will lose money.
I believe there are certain principles and safeguards you can set up to prevent against loss (like only buying property with great cash-flow and always have multiple exit strategies), but in reality – it’s impossible to stop all loss. Prepare for it, save for it now, and expect it soon.
8.) Strategies Will Change with The Market
One of the things that intrigues me most about real estate is the ever-fluid movement of it. It never stays completely the same, and it’s fun to see what it’s doing and where it’s going. Sometimes (as mentioned above) this can cause a loss for us – and other times it can cause a gain. What you are doing today may not work tomorrow.
That said, I am not a big believer in trying to chase the latest market trend. Just because it’s hot in Memphis right now doesn’t mean I’m going to move there and start investing (though I have no problem with those who do. I hear it’s great! I’m just not a Turnkey guy… yet!) I believe in following certain rules (like needing great cash-flow) in any market and if your market is drying up, change strategies but follow the same rules.
I’m not going to get sucked into flipping a property with the assurance of negative cash flow if it doesn’t sell – hoping the current rise in prices continues. I might flip a property, however, knowing that I could rent it out as an exit strategy and be okay. So the strategy may change, my rules will not.
9.) Most Starters will Quit
There is a good chance you are going to quit.
It’s just a fact. Most people who try to get into real estate investing quit before ever getting their first deal.
It’s a lot like dieting. It clearly works, and there have been countless examples of those it has worked on, yet the majority of people who start a diet end up quitting. Why?
I think it comes back to my shocking truth number one: it’s not always easy.
The point of this article was to share these truths with you so you have the greatest chance for success. I don’t want you to quit. I want you to succeed! I want you to make a lot of friends, make a lot of money, and come to BiggerPockets to share your stories and your wisdom. However, it’s not going to happen if you quit.
10.) Real Estate Investing Can Be Incredibly Fulfilling
This is my favorite truth of all.
Real estate investing is fun at times, it’s freeing, it’s exhausting, it can be boring – but it’s also incredibly fulfilling. I am passionate about what I do because I love what real estate investing has done for me. It’s not just a job, it’s not just a way to build wealth. It’s a complete lifestyle change. It’s about leadership and taking control of my financial future. It’s about making new friends, helping people out, and improving my community.
If you are looking for a way to build wealth – I’m here to help and BiggerPockets is here to help. I want you to experience all the joys and fulfillment that a life in real estate can bring! Definitely jump head first into this community and experience all the awesome things it can do for you.
Don’t know where to start? Check out my article “The ONLY Step You Need to Get Moving in Your Real Estate Investing” and let me know below in the comments: what is your favorite truth?