Is Bigger Pockets Creating Unrealistic Expectations For Investors
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
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Is Bigger Pockets Creating Unrealistic Expectations For Investors
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Priyanshu AdathakkarPro Member
Realtor · Columbus, OH · Member since 2017 · 313 posts · 245 votesThe biggest flaw I have seen here is inexperienced people giving advice when they themselves have no clue of what they are talking about!
136 Replies
- Real Estate Broker · Wilmington, NC · Member since 2016 · 236 posts · 126 votes9y
There's tons of investors who have no respect for agents and the majority of times of I have issues it's because investors have a negative attitude towards me from the beginning. If somebody comes in and has unrealistic expectations it's from:
1. Not knowing enough about the market or real-estate in general
2. Having a bad attitude
This is why I stick with sellers instead of buyers anymore. I've just become so jaded toward buyers that I don't want to deal with the hassle anymore. At the first sign of trouble, I just say no. I had a guy threaten to leave me a bad zillow review because I just flat out didn't want to work with him.
It's the nature of the business and the overall buying process that I think investors don't realize. If investors want that good of a deal, you gotta call a wholesaler.
I don't think BP is to blame, however I think newbies reading the success stories don't understand the level of work that goes into it. It's human nature, whether on BP or any other site, to see success, and want to replicate it! If you don't understand houses, you don't see the work, you just see pretty pictures! I'd be nice if when they posted success stories, it also said how many hours of time/work went into it. We just finished up a full rehab, I'd estimate we spent like 200-300 hours working on the weekends. How appealing is it now?
I will say, I do understand @Russell Brazil's frustration, because it's hard when your secret is working your a** off, and you tell people essentially that's it, and they say "oh, I only want a turnkey, i don't want to do any renovations, but I want the same return as a full rehab"
- Real Estate Broker · Chicago, IL · Member since 2015 · 1k+ posts · 2k+ votes9y
@Russell Brazil I've been experiencing similar interactions with potential 'investors' as well. I blame the phenomenon somewhat on people reading only the data that makes them feel good and ignoring the rest. With each metro area having its own forum, finding location specific information on what is a reasonable expectation is not difficult. But many folks would rather read the exciting feel-good stories of someone purchasing a property at 50% fmv and reselling for 20% over list than read about how their specific market is priced only for those hoping for appreciation after holding for the next 10 years.
Its a shame. I've seen many people with the means (ie cash, preapproval w/ great terms, etc) never pull the trigger because no property ever matches their "requirements". So their cash just sits in the bank making a fraction of a percent per year. More often than not, those are the same people who believe that anyone who is actively purchasing properties is simply uneducated and has to be losing money. What they don't want to realize is each investor has different goals and resources. One example would be someone who does their own rehab work - that person can fix and flip for much less than someone paying a contractor, so they can afford to pay slightly more for a property.
I've also come across a lot of people who don't want anything that's on the MLS, no matter if it matches their requirements. At least here, deals can be found on the MLS. That goes back to folks only reading the exciting stories of someone coming across a property where the owner just wants to dump it for next to nothing (which is awesome), but setting their expectations that this is the way it is every time.
With the requirements some people present to me, like they only want properties that are 40% under fmv, no rehab needed, huge cap rate, and cash flowing in a class A area, they are essentially asking for slot machine jackpot returns with bank account risk levels. That'll never happen, at least not on a scale-able frequency. But when I deliver that bad news, I'm told I don't understand the market or investing, as if that everyone else investing is a fool and that person is the only one with the proper education to find a good investment. And again, those are the ones who will never purchase, which is why I invest the majority of time on clients who are prepared to make a great investment within the current parameters of our market.
- Investor · Saint Louis, MO · Member since 2017 · 89 posts · 44 votes9y
Perhaps the REI community does foster unrealisitc market expectiations. But the key word here is "market." Those same expectiations may be realistic for a fraction of "off-market" deals. Although I now use an agent, if I started with an agent my expectiations would have been "unrealistic" for sure.
- Colorado Springs, CO · Member since 2017 · 74 posts · 41 votes9y
I think the vision of success people dream up in their head upon reading success stories may lead to this a little bit. I know I'm a bit of a dreamer at time and always have to focus on the goal at hand. I refocus and remind myself that this is a long term proposition and the short term gratification may not line up with the long term focus of where I want to be.
I think with everything you will see success and failure and the goal is to have more success and limit your failures.
BP has given me more direction and lofty expectations possibly because I wasn't dreaming large enough, but in no way have they led me to believe this was going to be easy. If anything I think I've been put in my place more often than not when I reach out to the community and learn things I missed.
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes9y
We run into a lot of unrealistic expectations as well. Just the nature of the beast. Have to talk with 10 investors to find one with reasonable expectations just like you need to talk with 10 agents to find one that will produce when hired.
- Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes9y
@Rachel H. Speaking of luck, it has this weird habit of finding people after 9 months (or 9 years) of grinding it out. And those people that did get lucky (or were really diligence) also probably had a time or two where they were extremely unlucky. But you don't see nearly as many "failure" stories on BiggerPockets (or any forum). Survivorship bias is a nasty thing. Let's say that threads of BP success stories or HGTV $100K flips are all entirely 100% accurate and not gussied up. Maybe those people "got lucky" because they spend 5 years pre-"success story" building a business, making mistakes, getting small wins, learning, etc. And how many other people that started down the same path a decade ago are still in the business? If 80% of restaurants failed to make their 5th anniversary, then what percentage of no-money-down fix-and-flip investors make it 5 years?
Teddy, what did you think of Brandon Turner's guide for working with investors?
https://www.biggerpockets.com/renewsblog/2013/08/24/real-estate-agents-working-with-investors/
Helpful to you as an agent? Was it unrealistic? Just curious.
- I am new and inexperienced. I've read in BP at least an hour per day for a couple of weeks. The good news? I have no money for half-cocked ideas and dreams. Even better news? I'm more confused and 'behind' than I ever was. I have to change my manner of thinking. I only learned that this past weekend when reading "equity kills cash flow" in a thread. I'd never been in a position to leverage debt. That's a whole new realm for me. I'm learning. I'm taking notes. I'm using Google several times per thread to understand a concept that's thrown around as 'a given' for situations. I want you to know that not every beginner has the mindset of jumping right in without having the basics down. I am not even at the point where I can confidently have a discussion about real estate with a friend or family member. Well, maybe a dumb one, but I don't talk to them anyways.
- I am new and inexperienced. I've read in BP at least an hour per day for a couple of weeks. The good news? I have no money for half-cocked ideas and dreams. Even better news? I'm more confused and 'behind' than I ever was. I have to change my manner of thinking. I only learned that this past weekend when reading "equity kills cash flow" in a thread. I'd never been in a position to leverage debt. That's a whole new realm for me. I'm learning. I'm taking notes. I'm using Google several times per thread to understand a concept that's thrown around as 'a given' for situations. I want you to know that not every beginner has the mindset of jumping right in without having the basics down. I am not even at the point where I can confidently have a discussion about real estate with a friend or family member. Well, maybe a dumb one, but I don't talk to them anyways.
- 9yKuba F.Pro MemberReal Estate Investor · Los Angeles, CA · Member since 2013 · 2k+ posts · 694 votes
My guess would be that as a percentage of the entire REI population, BP users would be more likely to have had their expectations corrected at some point.
@Russell Brazil are you not finding the unrealistic expectations across the board whether from BP or other places?
I wonder how different forum topics produce different expectations as well.
No. BiggerPockets has given every investors out there an EQUAL opportunity to learn, and more importantly to network with the others. Which we all don't have to pay $20K to be part of.
- I have received valuable feedback on questions that I have
- I have met and spoke to different people, whom I would not have the opportunity to connect with
- I have learn to leverage on other's expertise where I am lacking in.
- And in return, I hope others can benefit from my opinions and experiences as well
Ultimately, it's the end user to manage their own expectations.
- Investor · Atlanta, GA · Member since 2013 · 3k+ posts · 3k+ votes9y
Or maybe it's that Bigger Pocket attracts people that have high expectations?
Most people aren't really that interested in real estate. Yes, a lot of people grew up with a father that said :"The best investment you can ever make is buying your own house.", but for most of them it's more of a pipe dream, that they don't really try to bring to reality. Those are not very likely to come to BP in the first place.
But the ones who do come to BP are the ones that want to dream bigger and have higher expectations. Most will never actually get involved in the business, but like the idea that they're reading and learning and feeling as if they're moving towards a deal, but will never jump that last hurdle of actually buying something.
And then there are some that will become active and will buy houses, whether to flip or hold or whatever.
So, I think the people we see posting on BP have in general higher expectations than people in general population, because the average person never comes here in the first place.
While BP can lead us to water, it's up to us to find a way to drink it or not.
- Phoenix, AZ · Member since 2016 · 74 posts · 17 votes9y
I feel that the information provided by Brandon and Josh is pretty solid and very realistic as I have heard there results repeated so many times and in even greater ways from a few individuals to the extent that I couldn't ignore them being more than realistic. That being said, I feel that people who get into REI and any sort of entrepreneurial endeavor for more than money, but for legacy and many different reasons out side of money, we tend to be dreamers so we like to look for the best in everything and like pushing the boundaries of what's considered realistic, BUT, we also have boundaries, if there is someone who clearly knows what they are talking about and they are saying what we are asking for is completely unrealistic and when you do the math its pretty obvious that it is unrealistic, we (the ones who wish to learn and would rather be the dumb and eager guy in the room rather than the cocky and stupid) will listen. So I think the people who mostly hit you up would probably be either 1. Those who are JUST barely (in their first couple days, if they are serious they will find what you say is true real quick from education) getting started, OR 2. People who see nothing but dollar signs and aren't willing to sell their ego in exchange for some good advice and truth. So a few bad apples spoil the bunch.
- Santa Rosa, CA · Member since 2017 · 325 posts · 701 votes9y
This is simply a statistics and human behavior problem. Not really a "problem" but the combination of two common and well observed phenomena
1. The Bell Curve. For any ability, from public speaking to basketball to real estate investing, the population lies on a bell curve of talent. You can move up the curve (to the right) by providing yourself with education. You can further move up the curve with hustle and work and experience. But at the end of the day, when its all added up, its still a bell curve. And those on the lower end of the curve are not going to succeed.
So while it may (or may not) be true that ANYONE can succeed in real estate, I can assure you that EVERYONE can not. Be it access to capital, contacts, friends, intelligence or luck, some will be able to succeed where others fail.
Side note, if you move everyone up 10%, then the curve remains the same and the same number of people succeed and fail. This is exactly why poverty can not be "fixed" There will always be a bottom 10% (and a top 10% for that matter).
2. Selection Bias. Simply put, the BP forums are not a statistically valid sample. Due to human nature, people who succeed will post more than people who fail, a lot more. There is the occasional, "boy I messed up this property" post or article, but they are well outnumbered by the successes. In addition, those articles are usually posted by successful investors and show the "bumpiness" of the ride, but they overall journey is still a success. Don't think so, ask yourself when the last time you saw a post that said "I have lost everything, I am ruined, I am quitting real estate"? Maybe there is one or two on the site, but look at the ratio to "I bought my first house at 20" posts and "my official free from W2" posts.
Now when people read the forums, they get the information, which is granted all true, but never the other side of the story. Here is a simple way of thinking about this. Ask 100 NFL starting players "Should I follow my dream" and all 100 will say yes and tell you all about how they followed their dream and it paid off, and its all true. Now ask 100 current homeless people....are you going to get 100 yes answers?
So combine the selection bias with the Bell curve and the answer to your question is yes, they set up unrealistic expectations. But I would argue it is not BP or any sites fault for that matter. They provide information and share stories. Any site that advocates anything from real estate investing to homeopathic cures to the benefits of chocolate, is going to suffer from the same phenomena. You can't change human nature.
Originally posted by @Cris P.:
I am new and inexperienced. I've read in BP at least an hour per day for a couple of weeks. The good news? I have no money for half-cocked ideas and dreams.Even better news? I'm more confused and 'behind' than I ever was. I have to change my manner of thinking. I only learned that this past weekend when reading "equity kills cash flow" in a thread. I'd never been in a position to leverage debt. That's a whole new realm for me.
I'm learning. I'm taking notes. I'm using Google several times per thread to understand a concept that's thrown around as 'a given' for situations.
I want you to know that not every beginner has the mindset of jumping right in without having the basics down. I am not even at the point where I can confidently have a discussion about real estate with a friend or family member. Well, maybe a dumb one, but I don't talk to them anyways.
Equity kills cash flow idea usually stems from a source trying to get you to exchange your earned equity/profit to buy their psuedo future cash flow and earn a buck in the process. Perhaps chasing cash flow kills equity gains is a bit closer to what can really happen. Good luck!
- Real Estate Broker · Wilmington, NC · Member since 2016 · 236 posts · 126 votes9y
It's a great article and very realistic actually! Thank you for sharing it Frank.
My message to other investors and the ULTIMATE secret to working with an investor friendly agent:
Cultivate the relationship wayyyyyy beforehand if you want a good deal. When someone calls me up and starts with "I want this, this, this, this and I want it NOW", that's ok and all BUT I have no choice to go to the MLS, because I'm not an ultimate deal wizard that can read every soon-to-be sellers mind in the market.
BUT if you call me, are nice to me, and tell me what you are looking. Say "Hey Teddy. I know your busy, buddy. BUT if you come across a brick rancher that's a little beat up. Gimme a call, OK? No rush. I've got financing all lined up..."
That'd be like magic to my ears!
I have way more incentive to work with you because I know you, like you, and you've given me TIME. When I'm doing my prospecting I will come across a brick rancher that someone wants to sell and it will be an easy deal. If I come across something on the MLS, you'll be the first to know. Way more painless then dragging me around putting in low-ball offers in a hot buyers market like a real-estate goose chase.
- I think there are a handful of bragger here... for some newbie, they can't tell bragging from reality, and started to expected the same.... When I read someone saying I go from 0 to 30 doors in 18 months, with no my own money invested....or I bought with hard money and refi and pulled all my money out and some.....Lol
- Clarksville, TN · Member since 2016 · 238 posts · 96 votes9yI see people looking for best case scenario on all investments and when I try to educate them and get them to work with more realistic numbers they tend to get a little pissy. I would rather they not be my client than to spoon feed them junk that they want to hear just to sell them a piece of property. There are plenty of unethical real estate agents that they can work with if that's what they want. I would rather build long term relationships with clients that I know will make a safe margin and grow then just piss away their money to never return, after all, we are only as good as our reputation. Explain to them the realistic returns they can expect and if they don't like what you tell them, that's ok. There are others that are looking for an honest realtor and the word will get out
- Specialist · Grand Rapids, MI · Member since 2016 · 1k+ posts · 611 votes9yRussell Brazil I don't think Bigger Pockets is doing that at all. The agents that are hustling and willing to discount their services when they are new are. In honesty if anything I think everybody wants to become an agent because of BP. As an established agent I think they have to realize thats not the best use of their time working with a new investor.
- Clarksville, TN · Member since 2016 · 238 posts · 96 votes9ySome real estate agents will tell their clients that a property is a great deal but the truth is, by the time you invest the money to fix it up right, you could have bought a turn key home. You have to know your market and the real returns a property will supply be it cashflow or equity in the long run. Too many people only know one way to skin a cat.
- Real Estate Professional · Redmond, WA · Member since 2015 · 67 posts · 47 votes9y
I know that when I really, really want something, I tend to get a bit of a tunnel vision. I get focused on what I want, and am quite blind to what I don't want to see (the risks or negative aspects).
Similarly, I think is easy for newbies to get excited about flipping houses or building a rental empire and read all the success stories without realizing really what's at stake, or the horror stories. Many of the posts, stories, and podcasts are based on success stories - because let's face it those are more fun to hear and talk about. Overall, the forums are likely more weighted towards the success side of the business.
Have there been any podcasts featuring someone who struck out in real estate and went back to a 9-5? Probably not, but I'll bet there are plenty of people who have done that.
Just encourage new investors to study both sides (the good and the bad), and determine if the (realistic) potential reward is worth the risk. As always, caveat emptor.
- Investor · Mesa, AZ · Member since 2017 · 109 posts · 57 votes9yChris Martin. What do you do in a sellers market when you have nothing to sell? Wait? I mean I do have my first personal home purchase, but I'm not going to profit from a sale. Renting is more realistic. Im relocating and don't want to throw money away on rent. I figured purchasing one home couldn't hurt until it's a buyers market. I'd like to believe I have the hussle. Hope I'm not being unrealistic in my goals. My husband and I have been educating ourselves and getting our financial ducks in a row. Now, getting our feet wet in direct mail. Can you explain what rules of thumb to use depending on the type of market? Thanks, Rhiannon
- 9yOzzy SmithPro MemberSpecialist · Dayton, OH · Member since 2014 · 352 posts · 265 votes
The first problem is that newbies are calling an agent looking for 70% ARV deals. Your job (as a good agent) is to accurately value the sale price for your client. If we investors could get that property at 70 cents on the dollar than that means you are not a very good agent. Now on the flip side that's not to say it doesn't happen from MLS listings but almost always involves lots of rehab and work and that's why you can get the good deals... because you still have to work for it. Like some of the others have stated above we are in an upward trend and the newbies are coming out of the wood work and it's not just on BP. Competition is getting tighter and some still focus on the
ARVx70%-repairs formula which is a great mark to shoot for but realistically there is someone willing to make a "quick" 20K on a 100K property and beat you to the punch and then you think the other guy over paid. If he made 20K on a flip did he really over pay? It's a matter of time vs money approach. If he has a crew and does volume than he probably got a good deal that wouldn't make sense for the first guy that needed 30K.
The last part of the equation is the newbie (and many others) don't have money out of pocket to spend on their own deal. This requires them to use hard money which almost never goes over 70% and due to the high cost of the money the borrower can't understand how anyone can make a profit paying those high prices.... it's easy - don't use HARD MONEY! That's how a guy can pay more for a property than you is because he doesn't have that high holding cost, but that's the only way many can get started. So they listen to the guru and drink the cool aid and think it's easy. It does happen but it still involves a lot of work. You as the realtor just happen to be the one to brake it to them many times that it's not like that on EVERY deal.
- Investor · Atlanta, GA · Member since 2013 · 3k+ posts · 3k+ votes9y
Not Chris Martin, but different markets require different strategies. In a seller's market it might be good to buy the smallest house in a neighborhood close to market value and then add on and bring it closer to the medium to larger houses in the neighborhood. That would be one way to create equity.
Another thing would be to buy and wholesale vacant lots to builders. They know that they can build spec homes and they'll sell - in the right neighborhood. Lots are more difficult to gauge for the owner, in terms of value and if you do your homework you can make some money that way.
Those are just things that jump out at me in the moment.
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