5 Harsh Realities About Real Estate Investing Every Newbie Should Know
I just got home from my local real estate club meeting. I enjoy going to these meetings for several reasons. One, I usually learn a thing or two that will help my business. Second, I get to network with others in the real estate investing biz to share success or horror stories. And lastly, I get to meet a lot of first time visitors or newbies who are full of excitement.
Newbies are people who are in the midst of discovering real estate investing. Their eyes are sparkling with the thoughts of the millions of dollars they are going to make, and they are just looking for a way, any way, to get started. They realize they do not know a lot about investing and are looking to rectify that through our real estate club. The thing is, they do not realize just how much they do not know.
When they get around to talking to me, they always ask a series of rapid fire questions. They want to know how I got started, how many units I own, how I financed them, how I screen tenants, etc, etc, etc. I will usually answer these questions and enjoy their look of excitement. I likely had the same look when I was in their shoes a few years back. In answering their questions, I also try to rain on their parade a bit. Not because I’m a jerk, but because it needs to be done. Newbies just do not realize how much they do not know, and someone needs to tell them before they get too far into this thing.
Here is what I often tell them.
5 Harsh Real Estate Investing Realities Newbies Should Know
1. Real estate investing involves work.
That’s right, you have to work at being successful at real estate investing. So many get sucked in by those late night infomercials selling the dream (and it is a dream they are selling) of living on some beach while real estate magically makes you rich. There is nothing wrong with having the goal of living at the beach, and real estate is certainly one way of achieving that goal. But if you think you can simply forget about things and ride the waves all day, you are mistaken.
Real estate investing is a business, and running a business takes work. Now, work does not have to be painting or sanding floors (it can be). Rather, work means keeping things going, putting out the fires, finding new income streams, buying and selling, learning new techniques, setting up and refining systems, and so on and so forth. There is no magic formula to get out of work.
2. Becoming successful takes time.
Becoming a successful real estate investor does not happen overnight. The belief that it can happen overnight is often part of that dream being sold by those late night infomercials and some of the so called gurus out there. Sure, it is possible to hit a home run your first time at bat, but it is unlikely. And yes, some folks do progress faster than others depending on the strengths and characteristics they possess.
For the most part, however, becoming a successful real estate investor is a long, ongoing process. Becoming successful and quitting your 9 to 5 job can be done. I am proof of that. But it is unlikely it will happen overnight. One reason is because…
3. The learning curve is so steep.
Imagine someone has asked you to design a computer program from scratch. Could you do it? Unless you already are a computer programmer, the answer is likely no. To do so you would need to gain certain knowledge and skills and start climbing that learning curve. You would need to read books on programming, possibly enroll in school or attend weekend seminars, and network and discuss options with other programmers. Eventually, you would be able to program something in perhaps six months or a year. But how successful you would be would depend on how well you climbed the curve.
The same is true for real estate investing. I often liken starting out to enrolling in graduate school. There is going to be a lot of reading materials. You will attend a lot of seminars and networking events. You may even spend a bit of money on a real estate course or two. Newbies do not understand all of the things they have to learn about, such as real estate pricing, rental rates, rehab costs, financing, insurance, tenant screening, marketing, who is buying, who is selling, where to invest, where not to invest and on and on and on.
How long will that take before you can do your first deal? Depends on how quickly you can get above the curve, but it is unlikely it will happen overnight. And you know, once you start to really learn about real estate investing you may find that…
4. You might not like real estate investing.
Real estate investing is not for everyone. Remember that infomercial you saw? They were selling you a dream, not reality. Everyone likes the dream, but the reality of the situation can hit some people pretty hard. Some will discover they are just not cut out for it. Others will discover that they like or prefer the security of the 9 to 5 job. I always tell newbies to get their real estate toes wet first and to not quit their day jobs right away. Finally, I like to tell them that…
5. You need to make sure your spouse or partner is on board.
You can have all of these great plans to become a super wholesaler, but if your significant other is not on board with your plans, you are going to have some very difficult times in the future. Becoming a full time real estate investor is a radical step for most, and many will simply not understand it. I highly encourage folks to bring their spouses to the REIA meetings and get them involved in their plans. After all, two heads are better than one, and you do not want to be in a position of having to choose between the two.
I hate to rain on any parade, but experience has told me it is necessary sometimes. If newbies are going to be successful, they need to know and think about these things before going in. On the flip side, if newbies work hard, study hard and like what they are getting into, they may have just found one of the best things in life that will allow them to achieve many of their dreams — perhaps even a beach house.
[Editor’s Note: We’re republishing this article to help out newbies who have found BiggerPockets more recently.]
What harsh realities would you reveal to newbies if given the chance? What were the most unexpected difficulties you encountered when you were starting out?
Leave a comment, and let’s talk!
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Kevin Perk is co-founder of Kevron Properties, LLC with his wife Terron and has been involved in real estate investing for 10 years. Kevin invests in and manages rental properties in Memphis, TN and is a past president and vice-president of the local REIA group, the Memphis Investors Group.