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

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@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.  

Books, seminars, podcasts and articles are all very important, but you're right. The best education is experience. No matter how much you read, eventually you have to go out and just do it, mess up, learn and do it better the next time.

Good post, and likely very relevant to many, if not most "real estate investors".

My question would be, now that you have this understanding, will you do something different to avoid that trap?

@Darrell Shepherd the school of hard knocks can be very expensive. 

Seriously, I've been in the financial services arena for over 40 years, insurance, banking and real estate (the longest) and the investment side of all three. Financial services is a highly regulated and complex arena. Yes, real estate is in the financial services arena. (I know you know that Darrel, but this is for others too.)

Throughout this industry, licenses and education are required, just not an option. Real estate is the least restricted area because everyone can buy or lease property so allowances are made.   

You must be of legal age to contract for yourself in anything. It's assumed that by 18 you finished school, can read, write, add and subtract, and have command over logic. (Logic? not really because the brain isn't fully developed until around 21, some take a bit longer, just a fact! )

Education is available in all of the financial services, formal education, corporate and specialized education. This is where professionals get their training. 

I've been spending a lot of time doing research and speaking with educators in the real world concerning education. I'll lay out what I've concluded adopting it to real estate.  

Here come the gurus. They laid claim to real estate because it is the least regulated area and allows investment. Individuals can get involved in real estate without much oversight. The gurus leached onto the "how to" aspects and if they are just halfazz careful, they have no requirement of meeting any legal aspects, they can flat out lie, mislead and embellish without consequences. Not all gurus are bad, but I'd say those who are most popular are on the dark side.

Why? Because for them to be popular they tell people what they want to hear. Anyone can do it, it's simple and you'll get rich. None of that is really true. 

The public; remember the developing brains, they are by nature easier to influence, more likely to take risks, are energized to take action and due to the lack of maturity and judgment can't see beyond their actions as to the consequences of what they may do. Perfect prey for gurus, except this group usually lacks money they can take from them.

Move up the age spectrum, young adults, much like the younger group but they are more mature, judgment has improved but generally we are still rather naive and trusting. Those employed have disposable income. They are success minded and eager to act. Time is more valuable and effort is a commodity sacred to them, the least given the better to accomplish something. They are easily influenced by the appearance of success and a desire to emulate others.  There is a greater sense of entitlement to success as well.

Move up to the middle age group. Risk tolerance has gone down, they are more mature, but perhaps not wise. There is the realization that they may not succeed if they are not well on their way. They are more concerned about financial security and they generally have income to invest in themselves if they must to advance. Personalities have been set, opinions formed and ethical attitudes established to fit their views. Generally more educated. If they don't see themselves as successful, they are likely to be more gullible and to be influenced by those that appear to be successful. They have more disposable income and are the real target market of gurus.  

Move up to the 55+ group, if you see these folks in a guru seminar, they fall into two areas. They have some success and are motivated to build greater wealth or, they feel they are behind and are getting desperate for retirement. They are more motivated to spend money to make money. Calculated risks are acceptable being dependent on the rewards, having moved through the middle age group, opinions, attitudes and ethical outlooks are well established and are harder to change or adapt. 

So, what's the point of all this? I'd love to say I don't know, but I do have an opinion. 

Gurus are not real educators as much as they are marketeers of dreams and desires. They have a product, a simple, or elaborate system that enables their customer to reach their desires. Each of the traits mentioned in each age group are used to promote the product. Real estate is the vehicle used to take people to their dreams and desires, it's the subject of the product but it is not the product itself that is sold. The "how to" approach implies an education, but it is not usually. A vocational or professional education in an industry is always based on acceptable practice to enhance skills and knowledge to succeed. Gurus are usually far from acceptable practice, which makes the product unique and marketable. Spinning it as education is the attempt to add credibility to the product and the more expensive it is, the more valuable it appears to be.

At some point, all of us have dreaded going to school. It just seems like 12 or 16 or more years of unproductive time spent. But not really, if it weren't for your education and your teachers you wouldn't be where you are today, wherever that may be. If not for that you couldn't study for a vocation or profession and you certainly wouldn't succeed or attain your goals. As much as we want the easy way of doing something, know that if anything is valuable it is not easy. 

Don't short change your education, especially in real estate. This industry requires ongoing education because the environment is always changing. Every transaction is different and unique, it is not a cookie cutter process. The short time you might suffer learning real estate will take years off of the school of hard knocks. Invest in yourself before you invest in others, get a good education. :)

And, don't forget our sponsors for this morning's rant!  

If these people couldn't make money from 2010-2015 with the massive recession and recovery that happened then they're absolutely pathetic. You could've been blind and picked a random house off the MLS and gotten 30% appreciation over the last 5 years in almost any market. Starting off right now in 2015, it's different. it's gotten extremely hard to find buy and holds that cashflow in any decent market so now investors are flooding to places like Ohio..... that's how you know there's a problem. It's gotten to expensive for most regular investors. But to your point, you're right... Jumping in and applying a strategy and learning from experience is the execution part of it. Strategy, and then execution.

@Rick Griffith

We attended a 3 day seminar in June.  I asked someone if they were getting anything out of the seminar.  His response was "no, I've been studying this stuff for 9 months." He has yet to do his first deal.

I started noticing a trend at the REIA meetings that followed along the same lines.

What is stopping people is fear.  Also I think they hear the guru sales pitch and expect money to fall into their laps.  It doesn't take long to figure out that si not going to happen.

I consider my wife and I's starting point as May of this year.  We will be closing on our first flip in a couple of weeks.  We have a couple of leads for our next flip.

For us, we had more fear of not moving forward with REI. To be fair, she has Realtor experience and I have construction experience. We have also been running a business for 6 years.

In other words, we did not just charge in like a bull in a china shop without understanding REI but we did not spend a bunch of time on the sidelines wondering if we should move forward with this.

You sound like you have a good head on your shoulders.  Take action but make sure you know what you are doing.

Thank you for sharing. I quite agree. Knowledge is truly not enough to be successful. You must also be willing and able to apply your knowledge. Thank you for all the wonderful insights from the other members as well. 

Great post and Great Feedback. Almost every podcast and book I've read clearly states in some form or fashion the importance of JUST DOING IT. I didnt want to fall into that dreaded pile of not being able to pull the trigger! Although I've been learning learning learning and have yet to do my first deal I am still taking some sort of action! Whether it be thru my personal finances as well as always trying to find a mentor.. Ive offered every REI I've meant my services of time (driving for dollars, making calls, etc..) in exchange for hey I just wanna walk thru some deals with you from beginnning to end. I've already been burned by one mentor, but thats still not stopping my drive. So, again great post and great feedback. Knowledge without actions equals nothing and action without knowledge wont lead to much either (at least in the beginning) And Good luck!