Let's Temper Expectations Of New Investors

[Stuart Udis]

Between what I read in these forums and new investors I speak with it's become apparent expectations must be tempered. Believing you will begin hunting for bargain properties across the country where multiple qualified contractors will be kicking down the door wanting to bid the $25K rehab while also serving as a free home inspector is wishful thinking. Assuming a flashy excel pro-forma and your "home run" purchase will have private lenders fighting to fund your deal will leave you disappointed. Running the renovations on teaser-rate credit cards will end badly for many. Calling a Wyoming LLC and an umbrella policy your risk management strategy is not going to cut it. Together this is social media fiction, not real estate investing.

[Marcus Auerbach]

What new investors don't understand is that conceptually, at the highest level, real estate investing is about equity. You can expect cash flow to be about 5% of equity, so if you want to quit your W2 you need a fair amount of equity.

Equity is hard to come by. The least advantageous, but also most common source, is your down payment. Or you wait for appreciation, force equity by making improvements and you can also negotiate for equity. But neither one is easy or quick.

There are just way too many people hoping to buy a 100k property (and spend all their cash on the down payment) and then hope to generate some cash flow. The best case is $200 cash flow and poor appreciation; the most likely outcome is a trashed interior and an expensive eviction.