3 Hurdles Aspiring Real Estate Investors Face (& How to Clear Them)
Let’s play a game. The person to choose the correct answer will be blessed with good luck and great fortune.
What do you think is the most common question that I get?
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A. How are you so dashingly handsome?
B. I have been educating myself for a while, but how do I actually start investing in real estate?
C. Are there any good websites where I could connect with other real estate investors?
No, I am sorry, it is not “A.” Better luck next time. If you chose “C,” you’ll need to guess again, too.
The answer is “B.” And I love getting messages like this, because I truly want to help push people to the next level—just as I look for a push from others to get to my own personal next level.
How I Got My Start as a Real Estate Investor
Let me tell you how I did it. Unfortunately, this will probably only help a small number of you.
I did the opposite of analysis paralysis. I did no analysis, so there was no paralysis. I jumped in headfirst—not knowing anything—and just figured it out. I didn’t know what I didn’t know.
This is a very stark contrast to just about everyone that I talk to. Most of what I hear is that potential new investors have done a ton of studying and feel they understand the concepts but are struggling to actually get started.
Therefore, what I want to do is take some of that fear away. I want to describe a few points that you may find useful in getting over that first hurdle.
Common Reasons Wannabe Investors Hesitate
The properties that I buy usually are in the range of $125,000 to $175,000 (just so you have a reference point). I usually have in the neighborhood of $25,000 to $40,000 saved to purchase a property.
If you are thinking that is not a lot, you are correct. When you start looking at down payments and closing costs, you are not left with very much.
On the flip side, if you think this is a lot, there are creative ways to get in for less, so do not feel discouraged.
I will say, I have a few credit cards that I rely on, as well as a line of credit or two. Trust me, I have maxed them all out in the past.
Now, let’s have some fun.
Property Purchase Example by the Numbers
I purchased a property in May 2018 using hard money. Here are a few dates and corresponding balances in my savings account:
- May (after purchase): $12,059 – Oh, geez. What have I gotten into? (Sees property in person for the first time; it’s a complete disaster.)
- August: $16,670 – Starting to get rolling on the rehab. Wish me luck!
- October: $7,587 – OK, this is starting to hurt a bit—a lot of unforeseen issues.
- December: $5,070 – Probably the point where someone stole all my copper pipes one night.
- January 2019: $4,628 – I need to pay my personal mortgage, and it is not far from this number. Help!
- After January: Phew, I’m in the clear. We have turned the corner and have started to collect rent. Onward and upward!
Why did I just do that? I want to show you that a lot of us, those who you may be talking to or seeing buy deals, might not be much different than you. We might have LESS money than you. Maybe we have more. Point is, there is some inherent risk that you have to accept.
I don’t care what the deal looks like, there is risk. You have to ask yourself, is it worth it or not?
No risk, no reward. Case closed.
A lot of people are struggling with their location. The market where they are located is either too expensive, not the right class (A, B, C, D class), or the inventory just simply does not meet their criteria (i.e., there are only single families and they are looking for multifamily).
You have to make the call: Are you going to stick it out where you are or look in a different market? Do some research, point, and shoot.
There is no right answer. If you choose a different market and it doesn’t work out, you do not know that it would have worked if you had decided to stay in your market.
If you choose to stay where you are and make it work but it doesn’t work out, you do not know that it would have worked elsewhere. Hindsight is always 20/20, right?
Just make a decision and go with it. Like Jeff Bezos says, he gets paid to make a few important decisions. That is it.
If you choose a different location and you are not familiar with it, I highly recommend you drive or fly there. Get out and walk around or at least drive the streets. Get familiar with the good parts and the bad parts.
- Do you see any new construction?
- Do you see any new stores popping up?
- Do you see people hanging out and having a good time?
- Is there trash littered everywhere?
- Are there even any duplexes there (if that’s what you want)?
What happens if I have a clogged toilet at 3 a.m.? What if my tenant gets really mad at me because the heat stops working and it’s cold out? What if my tenant stops paying?
There are probably thousands of questions that could turn you off from actually executing on a deal. You are not alone in thinking like this.
You must decide how you will manage your properties. Will you self-manage or hire a property manager?
This question will be debated by real estate investors until the end of time. Half of the investor population will tell you to get a manager, and the other half will just say to do it yourself because you will end up “managing the manager” anyways.
This is what I can tell you. I self-manage long-distance (1,500 miles). I am happy with my decision, and I make it work seven days a week.
I am no smarter than anyone else. I simply pieced together a team after an arduous vetting process and then just ran with it. I have had plenty of stumbling blocks along the road, including thousands of wasted dollars on “contractors” who didn’t do what they said they were going to do. All of it was ultimately my fault.
Whether you decide to self-manage or not, you will end up putting time and resources into finding a property manager or piecing together your own team.
The Bottom Line
Pick one direction, and start down that path. You can always switch to the other option if you need to.
All in all, while this crazy real estate life labors on day by day, it is worth it. Whether you are struggling with the money, location, or management aspect (or all three), it does eventually pay off.
I would recommend sticking it out—even if it feels like an impossible task. I can honestly say there have been at least 100 times I felt like I could not possibly continue—but I am glad I did.
What’s preventing you from getting started? Is there anything I can do to help?
Let’s talk in the comment section below.