RE Investment Nay Sayers

RE Investment Nay Sayers

Arnold, MD · Member since 2014 · 28 posts · 7 votes

Hi Gang,

I wanted to get everyone's take on this.  I'm not one to generally take to heart what other people say that are either a) not in my shoes or b) don't have words of wisdom from prior experience but I've been running into this a lot.  

Whenever I mention to someone that I'm educating myself into real estate investing and plan to make my move at the beginning of the year, I get a good amount of negative responses, basically saying it's an unwise decision.  This is not only from people outside of the business but some people that have done it.  I'm not one to get deterred easily but more often than not when you get that sort of response, ones natural reaction is to second guess.  

My question is how does/has everyone handled this "barrier to entry" for someone starting off.  Any words of wisdom or prior experiences that you've encountered that could be beneficial is much appreciated.

Thanks in advance!

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Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
11y

First Tony, their words of "wisdom" are not a barrier to entry...at least not a barrier to you.  They are a barrier to them.

Second, don't worry about it.  If you are looking for encouragement from them you'll never get it.  Trust me though, when (not if), you make your first million, they will be the 2nd to notice.

I always use this story when presented with the same scenario you stated above:

"An exit survey was done after a REI presentation to 100 people. The 1st 99 to leave the room, when asked if they like the presentation, and if they were going to move forward with what they saw said "no".  The reasons varied from the usual, "my brother..., my uncle..., I know someone...,  I tried it before and..., to my favorite,..."everybody knows".  It's been my experience this person named "everybody" usually knows nothing, but is the most common "expert" on all that is...and probably the biggest killer of dreams.

The last person to leave was asked the same questions.  The response was the exact opposite.  "Yes, I have done this program, I will continue to do this program, I have retired using this program, and the only reason I'm here is to learn more about this program". 

So, what's the moral of the story?  Easy.  Most people would rather follow the failures, because they are in the majority, than the successful, because they are not the majority".

So, don't listen to the Nay Sayers, unless you want to be just like them.

Joe Villeneuve
REcapSystem
A2REIC

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  • Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
    11y

    Lots of money to be made in RE

  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    11y

    First Tony, their words of "wisdom" are not a barrier to entry...at least not a barrier to you.  They are a barrier to them.

    Second, don't worry about it.  If you are looking for encouragement from them you'll never get it.  Trust me though, when (not if), you make your first million, they will be the 2nd to notice.

    I always use this story when presented with the same scenario you stated above:

    "An exit survey was done after a REI presentation to 100 people. The 1st 99 to leave the room, when asked if they like the presentation, and if they were going to move forward with what they saw said "no".  The reasons varied from the usual, "my brother..., my uncle..., I know someone...,  I tried it before and..., to my favorite,..."everybody knows".  It's been my experience this person named "everybody" usually knows nothing, but is the most common "expert" on all that is...and probably the biggest killer of dreams.

    The last person to leave was asked the same questions.  The response was the exact opposite.  "Yes, I have done this program, I will continue to do this program, I have retired using this program, and the only reason I'm here is to learn more about this program". 

    So, what's the moral of the story?  Easy.  Most people would rather follow the failures, because they are in the majority, than the successful, because they are not the majority".

    So, don't listen to the Nay Sayers, unless you want to be just like them.

    Joe Villeneuve
    REcapSystem
    A2REIC

  • Real Estate Investor · Portland, OR · Member since 2010 · 104 posts · 30 votes
    11y

    Hi, I 'm a fan of Robert Kiyosaki incl Diane Kennedy CPA. On one of there audio tapes , she talked about catching  crabs in Oregon. She explained if one has only One Crab in a Bucket, it will get out , but if one puts two or more crabs in the bucket, the other crabs will prevent each other from getting out! 

    Robert & Diane continued on how Human Nature is the same!   People are the same , whether - Jealous, Protective, Or ....

    I try to Live my Life with Minimal Regret !

    Thank you, Mitch Stanley

    Realtor, Keller-Williams Biltmore

    Phoenix,AZ   

  • Real Estate Investor · Salem, OR · Member since 2011 · 422 posts · 149 votes
    11y

    I first considered getting into real estate when I was 20. Everyone in my life told me about how much of a dead end it was & convinced me to be afraid of success. It took me a decade & a major life changing event to get into it. It is one of the best decision I have ever made.

  • Contractor · Valparaiso , IN · Member since 2013 · 604 posts · 327 votes
    11y

    REI is not for everyone, its hard work and the learning curve is different for everyone. Many people will try and fail, but the ones that learn the correct ways to analyze properties, screen tenants, hire PM's and turn REI into a functioning business model will benefit from significant financial gains.

    When people says its bad to invest in rentals/flips and the like they are often regurgitating poor information they received from someone else. Its much easier for someone to call REI a bad idea then it is for them to admit they couldn't possibly learn the business.

    These same people have become so used to the 40 hr grind that they don't want to leave the "safety net" they think they have in a weekly paycheck.

    If REI is what you want to do then listen closely to the skeptics and ask them for specific reasons to back up their opinions.

    Ask us on BP a lot of questions and learn everything you can.

  • Arnold, MD · Member since 2014 · 28 posts · 7 votes
    11y

    @Joe Villeneuve  Thanks for your input! You're completely right "Most people would rather follow the failures, because they are in the majority, than the successful, because they are not the majority"  I'm going to use this quote for my own motivation, if you don't mind :)

    @Mitch Stanley I've actually heard that snippet of content about the crabs as well.  I found it to be a great analogy of home some people operate in their lives, professionally as well as personally.

    @Rusty Thompson  I'm in the same boat as you brother.  I was a licensed Agent back when I was 22 and didn't get much support from anyone.  I put it on the shelf because of the same reasons as you mentioned.  After going back to school and getting a 9-5 I've done some soul searching and found out that it's not quite for me.  The second I decided to pursue RE again, I've had a laser guided focus.  

    @Chris Adams  Thanks for your input.  I agree with you.  I think most people that have that perspective either are close minded or not educated to how to properly go about the business.  I'll admit, I'm green to the business as well.  That's why I made it a point in my game plan to take until the beginning of 2015 to educate myself as much as possible before jumping into it.  I just bought "The Millionaire Real Estate Investor" by Gary Keller.  I heard great reviews and can't wait to read it.  I plan on reading 3 or 4 more books by the end of the year.

  • Homeowner · Pittsburgh, PA · Member since 2014 · 854 posts · 511 votes
    11y
    Originally posted by @Mitch Stanley:

     she talked about catching  crabs in Oregon.

  • Eric FernwoodBusiness Member
    Realtor · Las Vegas, NV · Member since 2014 · 994 posts · 1k+ votes
    11y

    Hello @Tony Leighty ,

    I got the same response when I first started. At first I was dismayed by their negative comments but I continued because I found that nothing came close to real estate in terms of achieving financial independence. Most people do not understand that when you buy rental real estate you are buying long term revenue streams. With other types of investments the purpose is to accumulate funds. Streams continue while funds eventually run out over the long term.

    Below is what I share with prospective clients who are also wondering if real estate is the right investment for them, and I hope it will encourage you to continue to pursue real estate.

    =========

    Why Real Estate

    Most people do not understand the fundamental difference between real estate and other investments. When you buy investment real estate you are buying a long term revenue stream. With other investments the purpose is to accumulate funds. Let me explain the difference between the two as it applies to achieving financial freedom.

    How much money would you need to achieve financial freedom? My answer would be a monthly revenue that would cover all my bills plus additional monies to enable me to live where I want and never need to work a normal job again. The specific amount would vary depending on your cost of living and such but I will choose $5,000/Mo. as a working number.

    There are basically two ways to generate a monthly revenue stream. One way is to accumulate enough funds and live off of those funds. How much you need to accumulate depends on how long you need the revenue stream to last. If you only need the stream for 1 year then $5,000 x 12 = $60,000 is all you need to accumulate. One year would not work for me and probably not for you either. Suppose you need the stream to last for 20 years? The math is $5,000 x 12 x 20 = $1,200,000. Not only is that a lot of money (post tax) to accumulate but I am not certain any fixed number of years will work because you do not know how long you are going to need the monthly income (live).

    Another factor to consider is inflation. Official inflation during 2014 is at 1.7%. However, remember that the “official” inflation numbers do not include energy or food. Personally, I use energy and eat so the inflation I experience at the gas station and the grocery store is much higher than the “official” number. Depending on whose numbers you use, actual inflation is between 6% and 10% per year. For simplicity, let's assume that from now on inflation will be 5%. What this means is that we will need 5% more each year just to have the same buying power as the previous year. (I am ignoring interest income since CDs and such are only paying 1% which is lost in the inflation numbers.) How much do you need to accumulate assuming 5% inflation, 20 years of revenue at $5,000/Mo? By my calculation: $2,055,000! This does not make sense. There are fundamental problems with the lump sum approach:

    • Since future inflation rates are unknown you do not know how much you need to start with. Remember that in the 1980’s the “official” inflation exceeded 14%. If I recalculate the amount needed based on 14% the lump sum needed to generate $5,000/Mo. is $6,505,830!
    • How are you going to accumulate the $1,200,000 (after tax) starting capital let alone $6,505,830?

    Now let's look at investment real estate. How much money do you need to build a $5000/Mo. revenue stream? Suppose you purchase a property for $100,000 and rent it for $900/Mo. The monthly PITI would be about $550/Mo (20% down, 30 year note). (Warning, over simplification coming!) If I assume the property is always rented the numbers work out to be: $900/Mo rent - $550/Mo. PITI results in a revenue stream of $350 per month! If I obtained 15 such properties I have a lifelong revenue stream of $5,000/Mo. And it's going to improve over time as mortgages are being paid off. Let's compare the amount of money necessary to establish a $5,000/Mo. revenue stream with real estate vs. a lump sum (with zero inflation).

    Comparing the amounts needed to meet our $5,000/Mo revenue stream:

    • Lump sum: $1,200,000 provides 20 years at $5,000/Mo. assuming no inflation.
    • Real estate: $300,000 provides today's buying power of $5,000 perpetually regardless of inflation.

    There are huge differences between the lump sum and a real estate revenue stream:

    • Inflation: If you are drawing from a lump sum, inflation is your enemy. With a real estate based revenue stream inflation is your friend. This is true because rents tend to track inflation but debt service is constant. Further, when inflation occurs interest rates increase limiting people’s ability to purchase homes thus increasing demand for rental properties.
    • Tax savings: With the lump sum approach the IRS will love you (not good) because everything is visible and easy to tax. With real estate there are lots of expense deductions (like coming to Las Vegas to check on your properties!) plus the IRS mandates that you depreciate the property over 27.5 years. Depreciation will be about $2,900/year/property (in the above example) that will be deducted from the rental income and may shield other income.
    • Little money needed to start: With the ready availability of 20% down investor financing you can begin your revenue streams with $20,000. And, accumulate more properties over time using the profits of the existing revenue streams to buy more revenue streams.
    • Forgiving: As long as you buy in a good area, all but the worst mistakes will be corrected over time through inflation and rent increases.
    • Convertible: Suppose single family homes are the best investment today and 5 years later the best investment are condo medical offices. IRS 1031 enables you to sell (swap) the single family homes in exchange for condo medical offices and, if handled correctly, is not a taxable event. I know of no other type of investment vehicle that would allow exchanges of like kind with no tax consequence.

    In summary, real estate investing is the easiest, safest and least time consuming (common man's) path to financial independence.

    ===================

    Best Wishes,

    Eric Fernwood

    FERNWOOD Team, KW VIP Realty520 Reviews
  • Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    11y

    For years my own dad has shown nothing but disinterest really in what I am doing.  He worked for the government for 30 yrs.  Look at who the people are that are being negative about RE.  It's a broad subject and everyone has heard a horror story, especially in the wake of the recent 'great recession'.   They were my best years ever, by the way.  Rent rates were climbing, applicant quality was rising and, oh, it still is!

  • Investor · Newton, IA · Member since 2012 · 89 posts · 39 votes
    11y

    It's Judge Judy, Judge Mathis, and The People's Court's fault!

    Okay, maybe not specifically, but just a couple of weeks ago I was talking to an uncle at a reunion about my real estate endeavors and his response was "Haven't you seen those court TV shows?".  Obviously, he was referring to the nearly daily instance on those shows of some sort of landlord/tenant dispute regarding damages and unpaid rent.  

    What he fails to understand, and so many others like him who see these TV shows or hear stories through the grapevine is that in a lot of those cases, the individuals involved in the role of being a landlord are more or less placed into that position out of necessity - what I like to call "playing" landlord.  There's a reason that the vast majority of those cases consist of verbal agreements and lack of knowledge regarding landlord/tenant laws, and that reason is that for many, becoming a landlord was never necessarily an intent - it 's often just something that came about from a lack of being able to sell a house or being unable to afford housing alone and requiring a roommate.  Furthermore, not that low income people can't be successful landlords or that they shouldn't rent to other low income folks, but there's something to be said about the fact that beyond the lack of written contracts/leases in so many cases, additional problems usually arise from the fact that these low income "landlords" themselves are financially illiterate or lack financial responsible and the capability to mitigate the risks via decent capital.  To be blunt, considering the vast majority of individuals on those TV shows to be "landlords" is rather insulting to the individuals who take an interest and intent in becoming successful real estate investors.

    And it isn't just these TV shows either, because that same uncle also had to tell me about a local farmer who emphasized how problematic renting out a farm house had been.  Granted, when you have an empty old farm house on the property, it makes ideal sense that a farmer might as well rent it out, but the problem is for many of the local farmers who find renting to be discouraging is that it's almost too convenient for them.  They have a house sitting there empty, figure they might as well make some money on it without putting much thought or effort into it, put it up for a cheap price hoping to may a quick buck - often in many cases never reinvesting a single dollar back into the property - and end up getting perpetually sub-par tenants.  And not to generalize our local farmers around where I live, but I know first hand that many of them are still living in this mindset as though it is still the "good ole days" and you can trust anyone who shows up exclaiming "they're just a hard working feller looking for a place to settle down".  Either that, or they're often stubborn and think that they'll take matters into their own hands and shut off the water when rent is unpaid.  

    And those two reasons alone I think is why so many "landlords" have so many horror stories, they just sort of became over night property managers that saw renting out a house was a convenient solution to whatever circumstances they were in - completely overshadowing the many landlords out who go into the real estate business with a plan, a goal, an end game, and an understanding of the laws.

    But then, aside from that, you have to remember that the vast majority of our population is fearful of risk and investing in general - there's a reason there's a higher number of employees than there are business owners out there.  Especially coming from an individual (that uncle) that worked most of his life with a single company before retiring with a nice little 401K nest egg, being an employee is so called safe, secure, and just the normal, traditional route.  In fact, in a lot of ways, it isn't specifically the fact that I was involved in real estate investing that was so alarming to him, the whole idea of investing outside of traditional blue chip stocks and mutual funds was completely foreign as well, and had I said that I was day trading Forex (I'm not, but know people who are successful doing so), had he the slightest clue of what I was talking about, he probably would respond in a similar manner as to what he did with my rental property business.

    And had I been interested in starting a sandwich shop for example, certainly that also would have caused a certain amount of discouragement from.  The thing is though, since starting a business is outside his comfort zone and he would encourage that I should just be happy living a conservative life at a 9 to 5 job, it would have been a far easier business proposal for him to wrap his head around in comparison to real estate.  Sure, there's a lot of similarities between proposing a sandwich shop business or proposing a real estate company, but the way to grow and expand a sandwich shop is relatively easy to grasp onto, whereas real estate for many people is more difficult to comprehend - partly because there isn't a "trending sandwich market" in the same sense that there is a "housing market" and also partly because despite the fact that many other businesses equally rely on loans and leverage, real estate quite honestly is probably a more debt heavy business than other small business ideas and a lot of people still have a lot of fear regarding these collateralized house of cards that fell apart during 2007-2008 housing crisis.

    Now, that's the reason I think many of the people I talk to have so many apprehensions, so I basically take those apprehensions and in a more concise manner than what I just did, basically explain to them that housing is a service, just like any other service and it's something that people are willing to/have to pay for.  Housing is a necessity and as long as you go into real estate with a plan and business strategy, you can find deals that make that service profitable, just like any other business.  The fact that there is so many other's who find real estate difficult is both a learning experience and a testament that there's a lot of people who have no business in being in this field. Just because Joe Schmoe became a landlord out of necessity and found it difficult to manage has no merit that success can't be found by someone who goes into it purposefully and well researched.

  • Hanford, CA · Member since 2013 · 5k+ posts · 1k+ votes
    11y

    Honestly this is the only site I am REALLY REALLY open with. In the past 6 months I have gotten much more open as I have started a free website in the " how to" for rental landlord. That being said, we didn't really "say" anything till we had our 4th house. Now that we have 5 houses, we are just excepted by our friends as "weird". 

  • South Lake Tahoe, CA · Member since 2014 · 111 posts · 37 votes
    11y

    @Tony Leighty   It's funny, I was told the same and about 20 years later I am glad I didn't listen.  When we bought our last home everyone though we were foolish because instead of landscaping our backyard we scrimped and saved to buy another house.  I would tease my husband while everyone else was driving new cars, I was driving around my real estate (didn't want the car payment, but the rental payment was ok).  Ironically the agent who sold our property we were moving from discouraged me from buying another home and also seconded, just get some landscaping and settle in.  He was a great agent and I know he had our best interests at heart but we ended up using someone else in our search because he didn't understand our goals.  

    Our property manager thought well, you might not want to get another one, I don't really think real estate is a good investment.. That was before the run up and I was amazing to me that people in the industry had so many reservations about it.  If done carefully and with sound business choice real estate is one of the best investments available to enable you to not have to work as hard to get to the same place.

    Welcome, you are now with other like minded people.

  • Peoria, IL · Member since 2013 · 967 posts · 383 votes
    11y

    I'm educating myself into real estate investing and plan to make my move at the beginning of the year?

    @Tony Leighty 
    What are you planning to do?


    I didn't make it as a Realtor either.  I think i am getting more efficient at figuring out what I am bad it.  But maybe it's just another thing I'm bad at.

  • Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
    11y

    One of my best friends always says he doesn't want to "do the landlord thing".  Having to go pick up the rent checks on the first of the month and deposit them must sound really difficult to some people:) Admittedly, it is not always just that ...you get the complaints, broken A/C units, etc. However, if I calculate the time spent taking care of each rental vs. the income from that rental the pay is great! I am my own boss. With inflation I can make more money every year just owning the asset. Nobody tells me to stay an hour later or what time to take lunch. This is the best business for freedom, income, and financial security.  Nothing else compares to it.

  • Real Estate Investor · Cheyenne, WY · Member since 2014 · 71 posts · 37 votes
    11y
    I think you should always focus on the positive people in your life. I was persuaded 20 years ago to not pursue investing in real estate. I think I probably would have more mistakes at that time, but would have come out ahead in the long run. Once you have made your plan, focus on understanding it and meeting it, later you can make variances as needed. I chose to focus on the stock market, which has been great, but then wanted to diversify I to real estate. Maybe for you the path is to start out in real estate and then diversify into the stock market! Good luck! :)
  • Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
    11y

    Here's one way to look at it. Real Estate is far and away the worlds biggest "industry," with $60,000,0000,0000,0000.00* worth of value.  What percent of that business do you need to own to be successful?  The naysayers lack ambition to the degree of wanting none of it.  More for you. 

    *60 Trillion dollars

  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
    11y

    Almost anyone who's entered this business has faced the negativity from others -- it comes with the territory.

    The question is, are they throwing general negativity at you?  Or are they pointing out specific issues that you personally might face due to your situation, experience, personality, resources, etc?  If it's general negativity, ignore it.  If it's specific to you, consider it, figure out how you'll mitigate those issues, and then move on.

  • Rental Property Investor · Fuquay-Varina, NC · Member since 2013 · 381 posts · 308 votes
    11y

    Hey Tony,

    I find that when I attend investor meetups I walk away super motivated and energized. Connect with people on BP, find a local meetup group or REIA. Spend time with those people, you'll learn a ton and can refine your plan.

    Network with people that have done it, discuss your fears, make a plan, and get going!

  • Jonna WeberPro Member
    Moderator
    Investor · Boise, ID · Member since 2011 · 1k+ posts · 736 votes
    11y

    Just keep moving forward.  Some will start to support you once they see you've made progress. Some won't, and that is totally OK.  I wouldn't even bring it up again to those that are negative.  It can be as polarizing as politics, and the energy it takes to debate the issue can be channeled much more effectively into propelling your business.  

  • Investor · Dallas, TX · Member since 2014 · 2k+ posts · 1k+ votes
    11y

    "I have not failed 700 times. I have not failed once. I have
    succeeded in proving that those 700 ways will not work. When I have
    eliminated the ways that will not work, I will find the way that will
    work."  - Edison

    It's easier to sit back and judge those things you either don't understand or weren't successful at yourself than to accept that you might not have all the answers.  Personally, it was fear that kept me locked into the 9-5 grind.  When I was laid off for the - I don't know 5th or 7th time, I can never remember - again, I finally realized that there is nothing about my "secure employment" that is secure. 

    I tell everyone I encounter what I'm doing.  Why?  Have you listened to this week's podcast?  It's an interview with Brandon Turner.  He got his 24-unit MF simply because he  was talking about his current activities.  He described it as "putting himself in the path of luck", when people said his deal was just "lucky".  I want to put myself in the path of luck.  I don't care what anyone says or whether they "get it".

  • Arnold, MD · Member since 2014 · 28 posts · 7 votes
    11y

    @Everyone :)  

    Thanks for the great advice and life experience.  I didn't know when posting the topic that it would get this great of a response.  It's an awesome thing what can happen when a bunch of people with the same positivity and overall perspective get together and share their experiences.  1+1=3  (Synergy)

    @Hattie Dizmond  Yes I actually was listening to that podcast on the way to work this morning.  Good stuff as always. 

  • Rental Property Investor · Lockport, NY · Member since 2014 · 119 posts · 109 votes
    11y

    My first (non hacking) rental was a three unit. The first tenant I put in the lower unit was to this day my worst. They put us through hell and we were naive enough to take it. He would turn the power off on the girl upstairs when he though they made too much noise. The cops were called several times. It was a nightmare.

     One night in the midst of this we had some friends over, and they began with the"my uncle had rentals and he had to get rid of them because it's a bad investment". As I listened to them I was seriously considering getting out, and came very close. But something inside me said" No others are successful at this and I need to LEARN how to do this the right way.

    Today I may meet some one who doesn't really know me and when they start with the negative about real estate I just SMILE and think "If they only knew".

  • Real Estate Broker · Burlington, NC · Member since 2013 · 95 posts · 52 votes
    11y

    @Tony Leighty -  I always look to the quote from Henry Ford...."Whether you think you can or can't, you're right".  

    As mentioned earlier surround yourself with people on BP, many, many successful people on here that are making a living investing in real estate.  When I started I kept getting the question "What happens if people don't pay their rent?".  My response was always what happens when the stock market crashes and you lose half of your 401K? (Like 6 years ago).  Now after 21 properties I don't get those questions anymore....you CAN make GREAT money in real estate....most of the nay sayers probably didn't know how to approach real estate investing as a business from purchasing/selling or managing properties.  You will learn so much on this forum...and will learn the right way to do it!...Y

  • Real Estate Broker · Burlington, NC · Member since 2013 · 95 posts · 52 votes
    11y

    I never get tired of watching this video

  • Homeowner · Newberg, OR · Member since 2014 · 7 posts · 3 votes
    11y

    All that negativity means is that you are on the right track.  You have to ask yourself a question.   Do any of those people have what you want?  If not, why ask their opinion?  I am sure they are nice people.  But why would you ask a man what it is like to be pregnant. Those people do not qualify.  Love them but say nothing.  My 2 cents.

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