I still find this hard to believe. 95% of would be real estate investors never buy a single house. A few months ago, I ran into a lady who has been going to seminars and REIA for more than ten years. I asked her how many properties she has bought and was shocked to learn.. None... not a single property in 10 years?
Then I begin to research the industry. I found out the failure rate is 95%. Can you imagine if our schools have a 95%
Everyday I ask myself why the failure rate is so high. How is it some many fail in spite of all the information and all the help. Or is there really any help out there? Are the Gurus doing their jobs? or is it the students that are failing the Gurus?
Let's talk about it. Maybe we can help a lot of people on this Bigger Pockets platform.
So if you are an experienced investor, flipper, or buy and hold person? What would you consider the reason for your success?
If you are a newbie or old timer who is really struggling to break through in this business, what do you think is the reason so many don't make it?
Here's my secret sauce. From day one I treated my involvement in real estate as a real business.
This means, I had an advertising budget, a lead generating and follow up process, a back end process and money source and above all an experienced mentor. My first ad budget was $295.00 credit I got from my local news paper.
The combination of all the above puts me shoulders above majority of the investors.
After more than 450 deals, everything just seems to fall in place, abundance of leads and lenders throwing money at me.
I actually believe this is possible for a lot of people in our industry. But they probably have to diagnose their problems first.
So what is the real reason 95% of the people fail in as real estate investors? Let's talk.
Because they get discouraged and quit. That's the only time you fail at something. Everything else is learning.
I don't think 95% fail, I think a vast majority of that don't try. These guru's pitch get rick quick with no money down, so people "want to be investors" but fail to start because they had unrealistic expectations from day 1.
I have only been doing this for 5 years but what I have learnt is that it takes money to make money. I get asked all the time, what can I do with $10k and my answer is "save more" At least in my world of buy and hold $10k is not going to do much.
I invest in an A/B area with an average purchase price of $500k. Most people I know start with low money down programs so they can get away with a initial capital investment of around $25k but you also need reserves. In this type of area having just 1 or 2 properties is ok because your tenant base is higher end and more stable.
I also invest in a B/C area with an average purchase price of $80k. So your $10k could get you a property but what you don't think about is the tenant class is lower and the ups and downs are more frequent. I have seen many investors fail here because they only have 1 or 2 properties and when the downturns happen it kills them, So you are going to need more money and more properties to balance out the ups and downs.
Investing takes time, it doesn't happen overnight, and I think people fail to keep with it when it doesn't happen immediately. It also takes sacrifice. Do you eat out for lunch every day, get coffee twice a day, have a new fancy car, and buy the latest trends? If you live paycheck to paycheck and do all this you are never going to become an investor because you aren't willing to change your lifestyle now for something you can have in a few years. It could take years of sacrifice and saving to get into this game and most people don't want to wait that long.
If it was easy to take $1k and turn it into $10k easily with minimal work and sacrifice like the guru's say, then we would be the richest country in the world. But it isn't that way. I can tell you from my experience it is worth it all though. I lived well below my means, worked a full time job for years while doing this on the side, persisted when others did not... and now I am enjoying the fruits of my labor. But for years I was just working hard without seeing any benefit and I had to keep going even though there was no light at the end of the tunnel.
I believe that fear is the tallest hurdle for the people that never buy a property. Even if they have plenty of money saved, sometimes the fear of losing the money in an investment is too great. They "what if" it to death and allow the fear of failure to prevent them from ever entering the game. You have to play in order to win, but if you never get in the game in the first place that in and of itself equals failure. It is a failure to take the chance and see what you are made of.
My opinion is a lack of business organization. While I don't believe that you need a full blown business plan, strict operational budget, timeline, scrum board, etc... Just buying a home, rehabbing it, and selling it isn't as straightforward as it seems. There are several hurdles during the process:
- Find the deal - Unless you are marketing or plugged into a community where there are opportunities, it isn't always easy to find the right deals
- Evaluate the deal - Without professional guidance and research tools, it is difficult for a newbie investor to evaluate and ARV/FMV or create an adequate rehab budget
- Secondary exit strategies - If things don't go as planned are their other opportunities to exit profitably. Sell before completion, sell retail, sell owner finance, refi and rent, etc. If you go over budget or bit off more than you are equipped to handle what do you do
- Managing the timeline - So you've purchased a home that seems like a valid investment opportunity. Who's doing the work? Can you get the work done in a timely manner? If you have high holding costs (financing, taxes, insurance, utilities, etc.) the longer you are holding the less money that you are making
- Selling profitably - How long will it take to sell? At what costs? Will it appraise according to your numbers? Will there be more issues come about at an inspection? Did you figure in realtor commissions?
I think that many people are not equipped to handle all of these steps. That's why it is important to educate yourself and find a mentor. A good mentor will help you evaluate things and identify potential hurdles before they come into play.
People fail because they think it's easy without understanding what the difficulties can be. Once you are familiar properly evaluating a deal and identifying most of the potential obstacles, it becomes fairly straightforward and your profit margins go up considerably. Investing does need to be approached more like a business than just a simple stock trade. It is not usually a passive investment, even when owning rental properties.
I think the reason most people "fail" or never start boils down to lacking one of these three things or a combination of them:
A strong "why".
First off I always question statistics when there is no possible way to gather the data for the referenced statistic. Is 95% the correct number? probably, but I have no idea, I would definitely wager it's a big majority. This doesn't just go for Real Estate investing though, I'm sure the numbers hold true across all entrepreneurial businesses. It's not a coincidence that we have the "1%", 1 out of 100 can make something happen and the other 99 work for that one.
The reality is that the average person isn't that bright, yeah, I said it. Apparently that doesn't disqualify you to be president though and unfortunately there is no IQ test to vote, maybe more people should get into politics.
I was in Lowe's yesterday picking up a blind for a rental house I just finished and leased. The 65 year old lady that was struggling though her shift at Lowe's was cutting my blind. It came up that this blind was for a rental house and then I got the required response that we have all heard "I would never want to deal with renters yada yada yada". I had to hold back my chuckle, she didn't recognize the irony of the situation. Yes, I had empathy for her.
Completely agree with @Arianne L. - not having a strong or deep 'why'. To just make money is not enough.
Michael Gerber, author of the E-Myth said it best in an interview. He was asked who he likes to work with and mentor along. He never picks the student that just wants to earn $x / month in passive cash-flow. Never.
The person must align their mission, vision and purpose. This goes for any endeavor.
If you don't know what you are aiming at, you will hit it every time.
People fail or drop out from: Lack of focus. Lack of a good why. Cheers!
Most successful real estate investors could have excelled in a number of other fields. The gurus and seminars often draw people who are broke or unhappy with their lives, and are looking for an easy fix. In many cases, whatever weakness got them in that position (lack of focus, lack of drive, failure to take responsibility for their destiny, etc.) will also make it difficult for them to succeed in real estate.
These are all great tips and advice, especially for someone like me who is thinking about becoming a real estate investor.
As a newbie, I would say that there are tons of information, and some are conflicting at best. It is difficult to decipher whose opinions, judgements, and authority are fiduciary.
I do believe it does take money to invest in real estate - not necessarily for a down payment but to have sufficient reserves for the investment (which does not seem to be discussed much). Real estate seems to be capital intensive.
I think having a business plan, being financially ready to invest, and knowing your end-game before starting will put that person in a better position than others. This planning phase at the beginning does not seem to be emphasized enough.
As I read other people's investment stories and talk with other real estate investors, I have noticed that some seem to have unrealistic expectations about real estate investing. This may be part of the reason why some decide to quit pursuing real estate investing, especially when challenges start presenting themselves.
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