I've come a pretty far way in my investment journey, having acquired 400+ units in the last two years. When I was first delving into this business, I was afraid that I knew nothing, and that I would lose money. And both of these things were true: I knew nothing, and I lost a bunch of money at first. But I stuck with it, now things are paying off, and I am looking to expand my business and grow further.
But, I am very curious: if you are just thinking about getting started, what are you afraid of? Is it not knowing what you are doing? Looking foolish in front of more experienced people? Being taken advantage of? Losing money? Starting something new? Being your own boss?
I am sure the answer is different for each person, but I would love to know what people are thinking. Tell me your own story . . .
I think at this moment my biggest fear is not finding a buyer for a property. Or, better yet, not knowing enough about the market and if my deal is acutally a "deal". I am sure this will pass after my first deal or so.
Thanks for asking btw.
Hey, Yasmine. Tell me more! What kind of business are you in? It sounds like possibly wholesaling? Are you struggling with any particular deals now? What emotions does it bring up for you?
This is one of those industries that attracts snake oil salesman faster than chumming for sharks.
It's a shame but a lot of people get really taken advantage of.
Always keep your guard up. Constantly check up and do your due diligence on EVERYTHING and EVERYONE.
It's not paranoia talking. It's business.
Well, no deals yet. I am brand new so to speak. My goal is to flip and mix in rentals for the long term income. However, wholesaling seems to be the best way for me to get started and raise some money.
My fear is this: what if I find a deal and get it under contract and then no one wants it? What if I get the rehab numbers all wrong? Then what? I certainly do not have the money to go to closing.
Even with that I want to get started, I am eager to learn even if it means learning from an expensive mistake.
I have two pieces of advice: the second is the one you gave yourself, take action. You will learn a ton from that. The first piece of advice is what my dad always used to tell me: measure twice and cut once. What that means is to do your homework up front. The more you prepare and test your ideas, the more you learn your market, the greater knowledge you will have, the less likely you are to make mistakes, and the more confidence you will have to move forward. Never just jump right in: it's a way to get burned. Bear down and investigate until you are confident you know what you are doing. You cannot avoid all mistakes and you cannot take 100% of the risk out of everything. But you can reduce the risk by being rigorous about learning first.
For me, it was putting up my entire 401k in my first deal. If it went south, I'd have to start completely over. So, I did a TON of homework.
Once the first deal was ready to go, and I had pen in hand, ready to sign documents, it hit me with a feeling of "This is very real. It's happening, and let's see where this leads".
Mine came in 2009 before buying was, what if I get stuck with a bunch of house s and the market crashes. Looking back on it now I'm glad I bought and didn't stay on the sidelines. To me this is the best business to be in. Just as you said stick with it and keep learning. Since then I've learned a lot and know there is much more to learn. What I've picked and continue to pick up is all worth it. Being on BP has really enhanced and leveraged the contacts, education etc without costing a fortune that most of the guru's charge.
As with Yasmine, I am worried about making a costly mistake and lose a bunch of money that I can't afford to lose....I am one of those over analyzers, afraid to take action.....I need to get over those fears and pull the trigger on a deal. I keep reading and educating myself, saying I just need to learn a bit more before I actually take action. Ugh!!
Thanks for asking and I appreciate the advice.
Thanks for the advice. I know once I close and get past my first deal my fears will go away. As with anything in life, I think we all have first time jitters. As I network and pull together a decent budget for marketing I will be on my way in no time. I am definitely going to share my experience - good and bad here on BP In hopes of helping others.
Yasmine, I hate to break it to you, but your fear will never go away. I get fears on every deal -- will I be able to raise the money, will the lender come up with something at the last minute? (That actually happened to me once.) Fear is not a bad thing, because it keeps me on my toes. Without fear, I might forget to dot an "i" or cross a "t." This business is not complicated, but it is one in which you need to pay attention to the details. So, fear is a good thing. But you also need to just push through your fears. That does not mean that you ignore your gut or you throw caution to the wind, or that you do a deal you know is bad. It means that, after you've done all your homework and you think you have done all you can do to make sure that the deal is a good one, if the only thing holding you back is fear, then you put the fear aside and move forward. And it will get a little easier every time, but the fear will never go away. And if it did go away, I would be worried!
Absolutely. This is a business where a lot of money is at stake, and the incentives can encourage less than ethical behavior. A lot of people are selling hopes, dreams, and smoke -- from brokers to gurus. We all need to keep our own goals in mind, do our homework, and try as much as we are able to deal only with people we respect and trust.
I was afraid of talking to sellers on the phone.. until I did it.
I was afraid of making offers in person.. until I did it.
I see that action is the only way to cure fear, yet I'm still afraid of what real estate agents and attorneys will say when I tell them I want to wholesale. Underneath it all, it's a fear of rejection. And as a newbie, I still feel inferior.
BUT I keep going because more than anything, I fear not achieving financial freedom.
You know, although we are speaking about RE on this site. The advise you have given can really be taken and applied to life in general. I embrace my fears and the fact that failure is part of learning. I think I will do just fine I hope to be the person who can help a new investor in the future. People who take their time out such as you to just answer questions and help someone like me I couldn't pay 1 million bucks for.
I will be sure to share my journey as it unfolds.
For me it's not being able to find a deal on a duplex in the market I want (downtown area) for 80% of market value that cash flows $200/door.
In terms of analyzing the deal sufficiently I have no worries, it's just a matter of finding a way to find a good deal on a property in such a "hot market".
@Brandon Hartman Why does that scare you? Or maybe it's just frustration. It's tough to invest in a hot market, but it sounds like you are keeping your discipline, which is extremely important. When things are hot, it pays to be extra careful to make sure there is enough margin on the deal for you that you will still be breaking even when the cycle ends, as it inevitably will.
@Yasmine Bisumber Yasmine, those are very kind comments. Thank you very much! I read something really interesting the other day, a book called "Go for No." It's a short little book, and it's aimed at people in sales, but I think it's applicable to life in general and our business in particular. The biggest eye-opener for me was the concept that you have to pass through failure to get to success. It's not that you are sitting in the middle with failure to the left and success to the right, and if you make the wrong decision you will go to failure rather than success. It's that failure is right in front of you and success is on the other side of failure. You've got to get through failure to get to success.
My own story in real estate has taken that route. My former partner and I were trying to do deals down south. We had two large deals, for about $6,000,000 altogether, under contract. Just before closing the bank pulled out of one deal. And then we backed out of the other deal when we found something we did not like in due diligence. We got our deposits back, but we lost all of the legal fees, bank loan fees, survey expenses, personal expenses, etc. that we had invested in the deal. It was very, very painful. And my partner and I wound up breaking up after it was all said and done.
But, a great thing came of it. I did not lose any money for my investors. And I learned a ton about the business. One of my investors then approached me about becoming a partner and backing me in the business. That would never have happened if I had not first taken a risk, learned on my own dime, and absorbed some very valuable lessons. So, even though I "failed" in my first partnership and on my first two deals, good things came of it, and I think I am actually further ahead now than I would have been if I had not experienced that failure.
On one of the deals we own now, we have had a very rough time. We inherited a poor quality tenant base, and when those tenants began to get delinquent with rent and requiring eviction, the manager on site was not well equipped to keep the property occupied. It took us a long time to get the property back to where it is performing near where it should be. There have been many gut-wrenching nights involved. But, my experience with this property taught me how to be an asset manager, how to oversee a management company, how to set high expectations for people who work for me, and how to monitor them and keep them honest. And, you know what? I would not trade this experience for the world because, on the other end of a lot of stressful days and nights, I have much more confidence in my own abilities. I know I can manage my way out of a bad situation. That is valuable knowledge to have, and I could not have gotten it without a bad situation arising.
Just don't put yourself into a situation where, if it goes bad, it will ruin you. Put yourself into a situation where, if it goes bad, it will hurt a lot, but you will still be able to pick yourself up and move forward. If you do, you will come out the other side a better person and a better business person as well.
@Nikki Robinson Nikki, I still hate talking to people I don't know on the phone!
2. mispricing risk
3. latent physical defects
4. Don Trumps hair
Very educating post thanks for sharing your story Jonathon and congrats on your success. I really do not have much fear in the buy/hold strategy because I have really dove deep into learning it and feel very confident with that strategy. I just had a decent flip deal thrown into my lap and it does scare me a bit but I am the type of person to say f it and just do it. It just worries me that I wont sale in time (owner financed), or the rehab cost will be out of my price range, or is there enough margin to make it worth my time. Its just stuff you think about, but you'll never know if you can fly or not if you don't jump. I believe I am going to go into this deal and if I fall on my face I will have learned many vaulable lessons.
Originally posted by :
Why does that scare you? Or maybe it's just frustration. It's tough to invest in a hot market, but it sounds like you are keeping your discipline, which is extremely important. When things are hot, it pays to be extra careful to make sure there is enough margin on the deal for you that you will still be breaking even when the cycle ends, as it inevitably will.
I guess "scare" isn't really the best word, more that it "worries" me. Patience and time could absolutely mitigate that worry because I could get in at a lower price when the market falls over time. I have the discipline to stick to my strict criteria, however, I also have very detailed goals and landmarks/times for hitting those goals that I want to meet. I am "worried" that I won't be able to find deals that are good enough to meet my strict criteria frequently enough to stay on pace for my 5 year plan.
Also, another reason is it is one thing that is out of my control...I can't force a buyer to accept 80% of market value. I can work hard enough to and try enough properties to offer on and hopefully a seller with accept, but I can never force it to happen.
If I can achieve my criteria for purchasing on the schedule I have set, I have zero things that truly scare or worry me (i.e. I don't see anything that I can't react to or work out a solution to, if necessary, as it arises). I don't expect everything to go perfectly, but I am confident that I can adjust, react, and develop a solution in the best possible way.
Hi Jonathan, it’s posts like this that make me so thankful to have found BP, with experienced investors such as yourself willing to reach out and have a discussion with newbies on their fears.
I joined BP two months ago and have since thrown myself into reading/viewing webinars/networking, which has been wonderful in assuaging my earlier fear of having no knowledge. Obviously I have a long way to go, but it’s individuals like yourselves who are willing to share their knowledge that have helped me move past that fear faster than I anticipated.
My goal is to invest in apartment complexes (learning to do the numbers on them right now, and how to pick a good market), and eventually build scale. My present fears are:
-Things just going south that are out of my control, esp. since I plan on investing out of state as I live in expensive Southern California :)
-What if I overlever and my apartments start underperforming?
-What if the assumptions in my model are incorrect? I have an investment banking background, so I KNOW what faulty assumptions/modeling can do to an analysis!
-What if the market tanks after I close a deal? This is a big one as I’ve heard many an investor say there is a correction coming…some say any minute now, others say four years out. I would still like to get started now somehow, as I feel if I wait four years and nothing happens, I’ll be kicking myself for it! All the more reason to be EXTRA smart.
I’d say those four are my biggest, but learning to assuage them one by one through daily learning and networking with experienced investors on BP. It’s been therapeutic enough reading this chain and seeing that others have the same thoughts, but like me, are determined to plow through make it work :)
By the way, 400+ units in two years is incredible. CHEERS to you, sir!
Brandon, thanks for clarifying. I totally understand the burning desire you have to assemble a portfolio and make your mark. We can't control the sellers or the markets, unfortunately, as you so aptly point out. Sometimes our plans and goals just cannot be met if the market won't cooperate with us!
Michelle, I hear you about investing out of state. I'm in New York City, and investing here makes absolutely no sense, so we focus on the Southeast. You can do the same thing from SoCal, but you need to be very careful about who manages your properties, and you need to learn (as I did the hard way) how to be a real asset manager. You are really asking all the right questions, and your background gives you a lot of financial sophistication, so you are probably not likely to make a big mistake.
As for the coming correction, we all know it's coming, but nobody knows when. I'm very conscious of it when doing deals. I think that all you can do is make sure that you are building in a margin of safety. You are going to have to accept slightly lower returns to keep leverage lower. You need to make sure that you are buying at a high enough cap rate that you have some fat in the deal to tide you over if vacancy rises. (Again, this means no SoCal for you!) And you need to lock in these low interest rates for as long as you can to manage your interest rate risk.
A market correction is not a problem if you have the ability to wait for the inevitable turn back in your favor. A loss of asset value is merely a paper loss unless you have to sell. If you are not forced to sell, then you can just wait it out. If you buy at a decent cap rate and don't over-lever the deal, you should be able to ride it out. The people who will get their heads handed to them are the ones who are buying in tight markets at very high leverage with short-term debt in order to try to make enough of a return to get the deal past the investment committee. Those are the people buying in New York City and Los Angeles and San Francisco, and there is going to be a lot of pain in a few years when those people have to refinance at much higher interest rates.
Jonathan (my autolink for names isn't working on my computer today, sorry!) - thank you so much for the advice. I do realize that being smart about things will take out like 90% of my fears, and again it's kind, knowledgeable investors such as yourself on this forum that are getting me closer to that. You are AWESOME for starting this post, sometimes people "just need to hear it", you know? :)
@Michelle Watt Thanks, Michelle. I enjoy sharing my experiences and also enjoy hearing what others are doing. Keep posting as you develop as an investor/operator!
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