Why you won't be successful in Real Estate, despite what you know

33 Replies

    This Saturday I awoke early, and got in my car to start my 1 1/2 trip to Philadelphia. Ron LeGrand, the millionaire real estate investor was set to speak. My Real Estate education goes as far as some courses and books, no Real Estate deals. I heard this big name was going to be speaking and I was so excited to see what I could learn.

     I sat down in the conference room, and listened to numerous conversations between investors. These guys and gals were talking about convoluted real estate strategies, as I sat there bamboozled. These people seemed to have all the knowledge in the world about real estate, and I was prepared to hear them state they made thousands on their last deal. To my surprise, 95% of these investors were still holding dead end jobs trying to get by. 

    I was frustrated, because I had just listened to dozens of investors who said they've been in real estate for years. They were talking about concepts that sounded like they were part of a physics equation. If these people who've been doing real estate longer than I've been alive can't get a deal, how can I? Despite the great information Ron shared with us, I went home angry and discouraged. How? How can someone know that much about real estate and still not be successful? Maybe they're just not smart enough to do real estate, maybe I'm not smart enough to do real estate I concluded. 

    After days of rumination, I came to an insight that will affect my investing career and any other action I decide to take in my life. Knowing is not enough. You WON'T make millions off what you KNOW, you'll make MILLIONS of what you DO with what you know. See, these people knew all kinds of strategies that could set them on a path to financial freedom. But, listen closer to them and you see that none of them implement these strategies. They're stuck in "analysis paralysis". Some of them actually have done deals but a couple went bad so they just got discouraged, and decided to hit the books again. But most of these investors ended up staying there and haven't done a deal since. 

    This idea of applying what you know extends beyond real estate. You can read 100 different books but if after reading those books, 100 things haven't changed in your life then you just wasted $15+ on a book. A lot of us just get satisfaction from knowing a lot of stuff, it's never enough. I'd pick the investor who only knows 2 strategies and applies them both, rather than the investor who knows 15 and applies none. You must learn, and then take action. 

    It takes courage to get out there and do deals, regardless of how much you know. Mistakes will be made, but you'll lose more money sitting at your computer just reading about real estate every day and not going out there and doing the damn thing! Don't judge yourself as a real estate investor on how much you KNOW, judge yourself on how much you actually DO with what you know. But hey, what do I know. I'm just some 18 year old kid trying to make it big in real estate. I do know that I won't put my pride in how much I know, but rather how much I do with what I know.

Knowing is not enough; we must apply. Willing is not enough; we must do.

-Johann Wolfgang von Goethe

@Rick Griffith   just for a perspective.. I had my Real estate license and did probably 300 deals before I ever got on a computer and actually new how to run one.

this is not a new business its an old business and its a belly to belly business and its one that requires work and CAPITAL  if you do not have Capital you need to get it.

yes some people get lucky but most as you noted fail probably 97% of those who think this is a get rich quick business .

good luck

Originally posted by @Joe Calderon :

So...what are you doing right now to change things?

 Hey Joe, thanks for your reply. Personally, I just made this post to spread awareness in hopes it could benefit other investors. Personally, I've been spending time looking for a mentor and getting ready for my first deal.

@Rick Griffith , that's great. There are a boundless number of places where connections are made with other real estate investors/agents/brokers/etc. All that needs to be taken is action. I can guarantee you will find one tomorrow if you take the steps out of the door into several real estate agencies.

Do you know what your first deal is going to be? A house or an apartment? Or something else?

Originally posted by @Jay Hinrichs :

@Rick Griffith  just for a perspective.. I had my Real estate license and did probably 300 deals before I ever got on a computer and actually new how to run one.

this is not a new business its an old business and its a belly to belly business and its one that requires work and CAPITAL  if you do not have Capital you need to get it.

yes some people get lucky but most as you noted fail probably 97% of those who think this is a get rich quick business .

good luck

 Thanks for your great insight Jay, any information for a new investor like myself is appreciated. I must inquire though... You say capital is incumbent. Does it always have to be your capital though? Many real estate strategies I've heard of go along the lines of using a third parties capital to fund your investment. I know you're a seasoned investor, so I just had to ask. Thanks!

@Rick Griffith   of course we all start somewhere I started by selling Real estate and making commissions an saving money to invest.. when my friends were making 2. 50 an hour in 1975 I was making 5k a month.. but in all candor I was one heck of a salesmen. and that is lost on most investors.. they lack sales skills.

And yes if you lack your own personal funds and do not have job that will allow you to save larger dollars quick then the next thing you need is to find equity partners.

Originally posted by @Jay Hinrichs :

@Rick Griffith   of course we all start somewhere I started by selling Real estate and making commissions an saving money to invest.. when my friends were making 2. 50 an hour in 1975 I was making 5k a month.. but in all candor I was one heck of a salesmen. and that is lost on most investors.. they lack sales skills.

And yes if you lack your own personal funds and do not have job that will allow you to save larger dollars quick then the next thing you need is to find equity partners.

Most Realtors lack sales skills too...literally no training in sales whatsoever to become a RE Agent.  

I did all Ron's stuff years ago.  Good info in there, but I haven't done anything creative in years.  I buy, fix, sell.  Rinse and repeat.  I'm glad I know what I know and wouldn't hesitate to use that stuff if it came up, but its more designed to bamboozle and sell books and tapes than really show you how to build a successful real estate business.  I remember Ron saying once "Flipping a house is easy, its running a business that's hard"  Pretty true.  

Like Jay said, you need to focus on capital. This is a VERY cash intensive business. It doesn't have to be yours, but it does have to be there. There are ways to get around using banks, and you gotta start somewhere- which is why the Ron Legrand's of the world are always out there. Saying that, scaling L/O's and sub2's is not the way to RE riches. Ask me how I know this.

I had a person that did Ron's classes with me 15 years ago ask me about funding a flip (on a house I'd already passed on) a few months ago and their incompetence was staggering for someone "in the business" that long and supposedly had training.  Knowing a whole bunch of ways to beat the system doesn't beat someone that is working the system well.  In fact, if you look at the truly successful people, they aren't doing what they teach in the seminars.  They are building a buy and hold portfolio with bank money or doing lots of flips with bank/private money.  I also don't know why people assume they need to avoid being an agent.  I personally know agents doing multiple 6 figures (and one doing 7).  I only do my own stuff, but I'm getting a $7,500 commission next week on a purchase.  That'd add up pretty quick if you worked at getting some listings.  If I had to do it over again, I'd have gotten licensed WAY earlier.  

Anyway, just look around. you're going to find very few people making $20k+/mo doing anything with lease options and Sub2's. Fine to start with that stuff, and its important to know how everything fits together, but don't buy into that guru stuff 100%.

JUST DO IT! Sitting on the sidelines won't put money in your pocket. Find a deal and you will find money. Make a plan and set goals. Put your plan into action. You can't do deal #2 until you do deal #1. The more you do the easier it gets.

Rick Griffith The fact that that you are already thinking this way at the age of 18 is inspiring. You just might have the passion it takes to be successful in the game of monopoly. It's definitely a long term plan and not a get rich quick deal. But those can happen from time to time. I totally agree with everything you are saying. I've only read one book "rich dad, poor dad" and learned most of what I know from talking to other investors and making deals for the last year. I keep things simple and it works for me. Plus I hate reading anyway! :)

There certainly is the need to take action on what you know. Two parts to what you know, first is what you actually know about your vocation, the second part is knowing how to apply what you know into action, two different things. 

You have to first acquire the knowledge about your vocation before you can apply it. 

That's with any vocation or profession.

Say you really want to be a great auto mechanic, but you read car books and magazines and learn what the look like and all the specifications. Then you buy a Ford and tear it apart and put it back together again with your Ford manual. Great, now you did it and you start saying your an auto mechanic.

Now, you get some business cards and post on CL "I will fix your car at your place" you get a call and go over to your customer's house, and he owns a Chevy, much like your Ford, but it's different. Your Ford manual won't work on a Chevy and you have no clue how to fix it. So, you just leave.

Next call, you go over and see that this lady has a VW, what is that thing sitting on top of the intake manifold? That's no Ford! You can't fix it. You leave again saying "next"!

Well, you end up going to look at 12 different types of cars and it dawns on you, I can only fix Fords and I'm losing a lot of business by only knowing how to work on one car. It's great that you took action to make money, but you can't take action on what you don't know.

Is the answer to spend a lot of money and buy all the manuals for all the cars? Well, it might be, but that will be a big investment, not to mention years of study to read all those manuals. 

Then you talk to another mechanic he suggests you learn the theory of engines and car parts, how and why they work. That while all cars are different, the parts and how they function are similar. Hey, that's just one school, much cheaper than buying all the manuals and a heck of a lot faster to learn mechanics! 

Now, you know the fundamentals of how cars work and their parts. Now you get it, now you know why that Chevy wouldn't start. 

In that industry, you might go back to all the folks who called you and fix their cars. In real estate, that is less likely because the owners have probably sold the property, but, they might still have it, you could get lucky.

Here on BP, we call that Ford mechanic a "one trick pony" he thinks he learned real estate because he understand how to do a lease-option. That means all he can do are lease-options until he goes to another guru to learn another trick.

You can take all the action you want, but if your knowledge is limited to one or two tricks, that's all you can do. Every deal in real estate is different, but at the root of every deal, they all have the same fundamentals in common. 

When you have the right kind of knowledge the options available to you become clearer, you understand the parts involved to fix any situation. That also means the second part of your knowledge, how to take action becomes much easier. You recognize which path to take and you're not wasting your time and money going down the wrong path. 

Who do you think has the best chance of success, a mechanic who knows all the parts and what they do, or a parts changer, the guy that just keeps replacing parts until something works?  

All those I know who are or have been successful in real estate, know real estate, the fundamentals and more advanced areas they specialized in. A know nothing type might get lucky and make some great money, but they really aren't successful, they are lucky! If you are the lucky one, why not just go buy a Lotto ticket and save some time and money? Take action, go buy a Lotto ticket!

Knowledge without experience is just information (Mark Twain) Experience without knowledge is just failure (ME). 

Those people sitting in that seminar probably all had something in common, they really didn't know real estate. They were all chasing a quick way to to a deal, but had very little knowledge of how to replicate what some guru told them. 

I know exactly where you newbies are, when I was a kid, my dad would tell me; "You spend more time and effort trying to find an easier way than just doing something right the first time"! He was right and it took some maturity to see that. Some people never get it, and the easy way is rarely the right way. Are we just lazy or really misinformed or both?

Learn real estate before you try to deal in real estate. Good luck, hope you make the right choice. :)

This morning's rant brought to you by Gevalia Kaffe, 100% Arabica coffee, a rich, never bitter coffee experience, And by, Pall Mall vapor flavoring, a smooth smoking experience without the concerns of smoking. 

@Bill Gulley

I do understand your analogy with understanding REI and that is not what is being taught at REIA's or the group guru trainings for 15,000 to 30,000.

The consumers know that it's overwhelming to learn all this information in the beginning and people want to make money NOW not down the road,  today. 

Well it's human nature to try to dabble in things without knowing very much about real estate. A lot of people say "master one niche and that's all you need". 

Well that's not being fair to the seller. 

Seller needs someone who is not a one trick pony, the seller needs some advisor that has a few different tools in the toolbox. 

The seller needs to know the person they're talking to has a couple different ways to go to solve a problem. 

I was very lucky when I started; I was interviewing sellers for a living. I didn't know what private lending was.  

I didn't know what the note was, 

I didn't know what subject to was, 

or a lease purchase and how it compared to a lease option

I didn't know what a wraparound mortgage was

I didn't even know about foreclosures. 

But I was trained to go through a Socratic dialogue with the homes to figure out what all the seller's choices were. 

Then I would come back with a seller profile to my boss and my boss would work out some kind of solution with the seller, it could've been a sub2 deal, a joint venture deal, whatever the solution was.

 I learned by doing. I know that's a very unusual situation to get started. 

But that's how I coach people. To get a fast start by going out talking sellers. 

But the new REI then talks to me about what the sellers' problem is,

and then what kind of solution(s)  is/are possible. 

I really do not know how you get really good at real estate investing quickly all by yourself.

It takes the average person about 5 hours to see the big picture of real estate, takes another 5 hours to learn the fundamentals of strategies. Over a weekend the light should go on. Do you know real estate then? No, but you know where to get the needed information.

Allow me to modify what you said about "consumers" they are under the impression that learning real estate takes a long time. Just learning what they need to know doesn't take that long at all. 

It takes a couple weeks to really understand the fundamentals of real estate and when to do what with who. Most ever one spends more time than that trying to research a single strategy and understand that, yet they still have no clue as what can happen or what to expect. 

About 10 hours is needed to study business law and real estate law, you better know what a tort is before messing with a property owner's head! Think of it this way, ten hours learning or up to ten years or ten thousand bucks if or when you screw up.

There is a difference between what a Realtor must know and what an investor must know, but both need the fundamentals before hitting the streets. A Realtor school takes just under 3 weeks, about 5 days of that isn't really needed to invest, but investors need to be aware. 

Having a good mentor will certainly help in taking action. 

What I do know is that I wish I had really learned real estate before I started out, I missed deals, made mistakes and wasn't really making money, but having been around a Realtor and an attorney, I stayed out of trouble.   Mentors are really needed. 

I'm sure I would be horrified to find out what goes on at REI meetings, old guys there telling things they've done for 20 years without staying current with the times. No advice is better than bad advice!

I got a call yesterday evening from a BP coach-mentor, a great marketing guy, that's what we talked about, newbies and how they are really messing themselves up by that want it now and without any effort attitude. Deal chasers. Desperate people do desperate things. And many in real estate play on that desperation. If people aren't learning to think for themselves, they aren't learning, they are following instructions.

Here's another thought; If hype is needed to make a deal, then it's not a deal!  :)  

Bp is a great source of information. As I log on in the mornings and through out the day to check the forums I learn something with each post. You guys insight to REI, do's and don't, bad investment strategies ect continue to motivate me to educate myself on this buisness. Great post OP it sure motivated to get out here and apply what I learn.

Great post. I can relate. I ve been reading, crunching numbers, meeting with realtors and doing drive byes for six months. I was constantly questioning myself. I finally pulled the trigger this week on my first. Its not "homerun" but for me a start. I'll learn from the experience good or bad which will give me the confidence to move one to property number two.

Good Luck

@Rick Griffith   I missed your age part.. I got my California sales license within 2 weeks of turning 18  ( must be 18 in most states) I worked as an agent for 2 years then got my brokers at 20.. took me about 3 months to finally close my first deal.. within a year as stated I was making 3 to 7k a month in commissions this is in 1975.   This was when 10 dollars an hour was a huge job... My specialty was selling land.. And owner financed land to boot... these all had 10% commissions or higher and I double ended virtually 99% of them. So if I sold one 10k lot I got 1k net.  and some weekends I would sell 2 or 3...

within 8 months of that I was able to buy my first home in the bay Area a Chappel home in Milpitas CA for 80k... 8k down 8k hml second.  first loan at 9% interest... that one purchase in the Bay Area changed my life.. I would have been fine.. but I kept moving up in Bay Area RE and well if your familiar you know what happened with values there.

So for me  Great sales skills and I paid for RE sales training... read a little about Carleton sheets and Dave Del Dotto.. but generally worked my butt off selling land.   7 days a week I worked.. I worked every weekend for probably my first 15 years in the business. and only took vacation at thanksgiving and Christmas.. once you get momentum and on a roll the last thing you wanted to do is take a vacation in the middle of the prime selling months that 10 day vacation set you back 2 months... And lastly I paid my tax's.. this is another area that self employed RE agents and brokers get into trouble.. fast forward to the few RE companies I owned and I can't tell you how many agents wanted meetings with me on April 10th to April 14th... I made it a RULE never to loan money to agents... But then again there are companies that are set up and that's all they do is like pay day loans for RE agents who are not self disciplined enough to pay tax's.

OK there are some other pearls and perspectives of someone who has actually started at the bottom and worked 40 years to get to the top only to get crushed again in 08 to 2010 LOL.  But we are back and better than ever now a days... !!

@David Nadelstumph    right now your area is about a can't miss... I have done about 10 flips in the last 18 months  all profitable some wildly so compared to what I can do in PDX. I did a great one in OLD mt. Pleasant.. and I am from Portland Or.. I rolling into town one week spent 3 days.. funded 4 flips and bought 3 building lots and starting building new construction.. fast forward and we are closing one on 3 1/2 woodall today for 440k .

It was a leap of faith for sure.. I bought a lot up in North Charleston for 20k not knowing at all what I was doing... LOL... but I think that is one of the great markets in the country.. now granted its gotten much more competitive since I started 18 months ago... But I have a foundation there and will ride this wave until is peter's out.

we also built 46 aiken and sold it to shep of southern charm show.. it was featured on the first episode this year..

If you have the means this a  great flip market !! in my mind.

@Rick Griffith

I actually have the opposite problem. I just jump into stuff without really knowing what I am doing. I figure I will learn along the way. I have very little fear of failure, probably because I have failed a lot in my life, and it doesn't hurt nearly as bad as the pain of regret.

On top of that I have read quite a bit about real estate investing and of course darn near everything on biggerpockets, but there was no analysis paralysis, and I wanted to invest as soon as possible.

Originally posted by @Bill Gulley :

There certainly is the need to take action on what you know. Two parts to what you know, first is what you actually know about your vocation, the second part is knowing how to apply what you know into action, two different things. 

You have to first acquire the knowledge about your vocation before you can apply it. 

That's with any vocation or profession.

Say you really want to be a great auto mechanic, but you read car books and magazines and learn what the look like and all the specifications. Then you buy a Ford and tear it apart and put it back together again with your Ford manual. Great, now you did it and you start saying your an auto mechanic.

Now, you get some business cards and post on CL "I will fix your car at your place" you get a call and go over to your customer's house, and he owns a Chevy, much like your Ford, but it's different. Your Ford manual won't work on a Chevy and you have no clue how to fix it. So, you just leave.

Next call, you go over and see that this lady has a VW, what is that thing sitting on top of the intake manifold? That's no Ford! You can't fix it. You leave again saying "next"!

Well, you end up going to look at 12 different types of cars and it dawns on you, I can only fix Fords and I'm losing a lot of business by only knowing how to work on one car. It's great that you took action to make money, but you can't take action on what you don't know.

Is the answer to spend a lot of money and buy all the manuals for all the cars? Well, it might be, but that will be a big investment, not to mention years of study to read all those manuals. 

Then you talk to another mechanic he suggests you learn the theory of engines and car parts, how and why they work. That while all cars are different, the parts and how they function are similar. Hey, that's just one school, much cheaper than buying all the manuals and a heck of a lot faster to learn mechanics! 

Now, you know the fundamentals of how cars work and their parts. Now you get it, now you know why that Chevy wouldn't start. 

In that industry, you might go back to all the folks who called you and fix their cars. In real estate, that is less likely because the owners have probably sold the property, but, they might still have it, you could get lucky.

Here on BP, we call that Ford mechanic a "one trick pony" he thinks he learned real estate because he understand how to do a lease-option. That means all he can do are lease-options until he goes to another guru to learn another trick.

You can take all the action you want, but if your knowledge is limited to one or two tricks, that's all you can do. Every deal in real estate is different, but at the root of every deal, they all have the same fundamentals in common. 

When you have the right kind of knowledge the options available to you become clearer, you understand the parts involved to fix any situation. That also means the second part of your knowledge, how to take action becomes much easier. You recognize which path to take and you're not wasting your time and money going down the wrong path. 

Who do you think has the best chance of success, a mechanic who knows all the parts and what they do, or a parts changer, the guy that just keeps replacing parts until something works?  

All those I know who are or have been successful in real estate, know real estate, the fundamentals and more advanced areas they specialized in. A know nothing type might get lucky and make some great money, but they really aren't successful, they are lucky! If you are the lucky one, why not just go buy a Lotto ticket and save some time and money? Take action, go buy a Lotto ticket!

Knowledge without experience is just information (Mark Twain) Experience without knowledge is just failure (ME). 

Those people sitting in that seminar probably all had something in common, they really didn't know real estate. They were all chasing a quick way to to a deal, but had very little knowledge of how to replicate what some guru told them. 

I know exactly where you newbies are, when I was a kid, my dad would tell me; "You spend more time and effort trying to find an easier way than just doing something right the first time"! He was right and it took some maturity to see that. Some people never get it, and the easy way is rarely the right way. Are we just lazy or really misinformed or both?

Learn real estate before you try to deal in real estate. Good luck, hope you make the right choice. :)

This morning's rant brought to you by Gevalia Kaffe, 100% Arabica coffee, a rich, never bitter coffee experience, And by, Pall Mall vapor flavoring, a smooth smoking experience without the concerns of smoking. 

 This is great.  I especially like:

"Knowledge without experience is just information (Mark Twain) Experience without knowledge is just failure (ME)."   

Very true words.  I got a little dose of that experience without knowledge (and I spent $100k on seminars my first two years if you include the travel) and got knocked in the dirt and stepped on when the market tanked because I was doing what I was taught without understanding it completely.