10 Most Common Incorrect Beliefs by Inexperienced RE Investors
Don KonipolBusiness Member
Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes10 Most Common Incorrect Beliefs by Inexperienced RE Investors
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Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes
2y@Don Konipol Great post! #7. In 1971 mortgage interest rates were 7%, In 1975 mortgage interest rates were 9%, and in 1981 mortgage interest rates were 15% or more. We have been spoiled by 2% & 3% interest rates, which we may never see again.
I would add a few more incorrect beliefs:
11. All the rent money goes into the owners pocket.
12. Vacancy/turnover is a minimal consideration.
13. All real estate owners are millionaires.
22 Replies
- Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes2yThanks Bob. I learn something new every day!
Quote from @Account Closed:
Quote from @Don Konipol:
Most Common Incorrect “Facts” by the Inexperienced
1. It’s “illegal” to purchase a property without the approval of the existing note holder (subject to)
2. If a property owner stops paying on a note the lender just “takes” the property
3. That there’s ONE foreclosure law in the U.S., not 51
4. That real property ownership is indivisible rather than a “bundle” of rights
5. That real as well as personal property rights isn’t under attach by political forces in the U.S.
6. Real estate prices always go up
7. Mortgage rates of 3 -4% are the norm
8. That real estate gurus / mentors have been successful in their real estate investing careers - if they ever actually had one
9. With no experience, knowledge or capital they can be successful by attending a weekend workshop
10. Lenders are lining up to provide down payment, “gap” financing, and earnest money deposit financing so that they, with no experience, no capital, and no knowledge can purchase a property they incorrectly analyzed as a good purchase, for “nothing” down.
I agree with all but number 8, which requires some explanation.
I am personally aware of a half dozen mentors/gurus that have made substantial amounts of money buying and selling real estate. They generally have made their money by "students" bringing them opportunities that they split.Some gurus have one side of the business with employees that find properties for them, called “acquisition specialists”. These are paid positions. One or two gurus spend on average of a documented $100,000 a month in employee costs, taxes, office space, marketing and bonuses. They are actually doing 6 to 10 deals a month.
On the other side of their business, their students pay a substantial mentoring fee of $11,00 to $20,000, but subsequently only turn into "birddogs" who maybe find a property after many months. The student gets a check and calls it quits. That is not a method to long term success. But, it is the choice of the “student”.
The students though, after paying big money to be mentored, do not receive personal "one on one" training anyway, that they thought they were paying for.The guru is too busy running his business. Personal mentoring would be an “upgrade” to a much higher fee, upwards of $40,000 which, for most people wouldn’t actually provide any additional value anyway. The guru is too busy.
Guru teaching is generally all “hands off” video teaching. Which I believe is misleading and ineffective, but I digress. Consequently the students do not fair so well. There is an extremely low success rate going this route. But, there are great “feelings” of belonging to a “community” and becoming an “investor”. Good feelings, but no accomplishments.
One guru states, generally 90% of his students do NO business whatsoever and about 8% do one deal before quitting, with the remaining 2% doing "okay" to doing "well".He does try to motivate people to pick up the phone and make the calls. His statistics are that if someone will make phone calls 5 hours a day for 90 days they will get a deal. Very, very few people will make those calls. His students, I believe, are generally the “real estate is an easy path to riches” crowd.
Some students are self starters and would probably achieve with or without paying the big fee. It would just take longer without guidance.
My experience is that someone has to actually apply what they are taught “consistently for a long period of time” in order to become successful, The mentor is there to help them along that path. But few people will make the phone calls or do the other things necessary to be successful.
It’s a decision on the part of the student, not always a reflection on the mentor.
A good mentor with a motivated student that will do the work, can go a long way.
- Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes2y
@Don Konipol Great post! #7. In 1971 mortgage interest rates were 7%, In 1975 mortgage interest rates were 9%, and in 1981 mortgage interest rates were 15% or more. We have been spoiled by 2% & 3% interest rates, which we may never see again.
I would add a few more incorrect beliefs:
11. All the rent money goes into the owners pocket.
12. Vacancy/turnover is a minimal consideration.
13. All real estate owners are millionaires.
- 2yGregory SchwartzBusiness MemberRental Property Investor · College Station, TX · Member since 2016 · 1k+ posts · 1k+ votes
6. Real estate prices always go up
Real estate prices have always gone up over a long enough time horizon on a national average..... but yes, on a year-over-year basis or in a specific city or town your experience may differ
Schwartz Realty Group5118 Reviews - Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes2yI have to disagree - kinda. If you were to buy a “basket” of real estate diversified over our entire country, then yes, you’d be correct. But, property in certain specific parts of our country have shown price declines (in real terms, accounting for inflation) over the last 50 years.
Quote from @Gregory Schwartz:
6. Real estate prices always go up
Real estate prices have always gone up over a long enough time horizon on a national average..... but yes, on a year-over-year basis or in a specific city or town your experience may differ
A perfect example of this is Detroit, where a friend of mine purchased 100 SFR in 2011 for $300k, or $3,000 per house. These homes were built 50 years earlier and originally sold for $10,000. Detroit is “supposedly” making a comeback, but it went from a population of 1,650,000 to 600,000 in 50 years. - 2yGregory SchwartzBusiness MemberRental Property Investor · College Station, TX · Member since 2016 · 1k+ posts · 1k+ votes
Quote from @Don Konipol:
I have to disagree - kinda. If you were to buy a “basket” of real estate diversified over our entire country, then yes, you’d be correct. But, property in certain specific parts of our country have shown price declines (in real terms, accounting for inflation) over the last 50 years.Quote from @Gregory Schwartz:
6. Real estate prices always go up
Real estate prices have always gone up over a long enough time horizon on a national average..... but yes, on a year-over-year basis or in a specific city or town your experience may differ
A perfect example of this is Detroit, where a friend of mine purchased 100 SFR in 2011 for $300k, or $3,000 per house. These homes were built 50 years earlier and originally sold for $10,000. Detroit is “supposedly” making a comeback, but it went from a population of 1,650,000 to 600,000 in 50 years.Yes correct. Detroit is the poster child for major city declines. But 99% of cities over 5 years or more have seen appreciation.
Schwartz Realty Group5118 Reviews - Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes2yWe can “split hairs” on this topic, but let’s just accept that our different experiences have produced a somewhat differing view. No correct or incorrect, just somewhat different perceptive. Your point of most real estate has appreciated over time is absolutely correct!
Quote from @Gregory Schwartz:
Quote from @Don Konipol:
I have to disagree - kinda. If you were to buy a “basket” of real estate diversified over our entire country, then yes, you’d be correct. But, property in certain specific parts of our country have shown price declines (in real terms, accounting for inflation) over the last 50 years.Quote from @Gregory Schwartz:
6. Real estate prices always go up
Real estate prices have always gone up over a long enough time horizon on a national average..... but yes, on a year-over-year basis or in a specific city or town your experience may differ
A perfect example of this is Detroit, where a friend of mine purchased 100 SFR in 2011 for $300k, or $3,000 per house. These homes were built 50 years earlier and originally sold for $10,000. Detroit is “supposedly” making a comeback, but it went from a population of 1,650,000 to 600,000 in 50 years.Yes correct. Detroit is the poster child for major city declines. But 99% of cities over 5 years or more have seen appreciation.
I’m actually more concerned, and my original reference (which I did NOT, unfortunately make clear) was to short to medium term price declines in any market, such as 2008 - 2012, etc. The investor who purchased in 2007 with no cash flow and large leverage would either have to have had the cash to cover 4 years of negative cash flow with negative equity in their property. They may not have been able to “hold on” for the turn in values, or their investment horizon may have been a shorter time (say 5 years) before the money was needed. I guess my point is that investors should not invest believing inflation or price appreciation will bail out a lousy investment or paying too high a price or structuring too much debt. It MAY, OR MAY NOT.
Personally, I tend to be more “speculative” in my real estate investments. As such I am able, over time, to generate a higher ROI, but with some absorption of losses along the way. When you move away from investment in SFR, into commercial and investment type real estate, you get a much more varied valuation over time. Example would being the triple net properties sold to investors 20 years ago with Dollar General as long term tenant. If the locations turned negative, Dollar General never exercised the option to extend, and if the location remained good, they built a larger store across the street. The value of some of the locations was reduced to land value. - 2yGregory SchwartzBusiness MemberRental Property Investor · College Station, TX · Member since 2016 · 1k+ posts · 1k+ votes
I actually agree with you more than it may seem. In the Realtor world, I cringe when I hear my colleagues say "Real estate prices only go up". It's almost as bad as "it's always a good time to buy".
Professionals in the real estate industry should not speak in absolute. It's misleading to our clients, partners, etc.
Schwartz Realty Group5118 Reviews - Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes2y
Quote from @Don Konipol:
Most Common Incorrect “Facts” by the Inexperienced
1. It’s “illegal” to purchase a property without the approval of the existing note holder (subject to)
2. If a property owner stops paying on a note the lender just “takes” the property
3. That there’s ONE foreclosure law in the U.S., not 51
4. That real property ownership is indivisible rather than a “bundle” of rights
5. That real as well as personal property rights isn’t under attach by political forces in the U.S.
6. Real estate prices always go up
7. Mortgage rates of 3 -4% are the norm
8. That real estate gurus / mentors have been successful in their real estate investing careers - if they ever actually had one
9. With no experience, knowledge or capital they can be successful by attending a weekend workshop
10. Lenders are lining up to provide down payment, “gap” financing, and earnest money deposit financing so that they, with no experience, no capital, and no knowledge can purchase a property they incorrectly analyzed as a good purchase, for “nothing” down.
lol, if you need a loan for the earnest money, you are not ready to invest. Get a 2nd job and save some money for a couple years then come back later.
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes2y
Great post as always Don. I would also add three more,
11. even if you have capital - attending a weekend workshop does not make you an investor. I went to school for civil engineering. Do you think after the first week of taking a class on concrete design I could design a building or new everything about concrete. You do not know what you do not know, and most of those weekend workshops will have an upsell for another program... Not much is taught in a weekend except tying your shoes and making grilled cheese sandwich.
12. Preying on people in pre-foreclosure to buying their home is "helping them out". Many states have laws against this, but stop saying you are "helping them out", you are not, you are trying to take advantage of them to sell their home at a discount.
13. Transferring properties in your name to a LLC gives you instant asset protection. People waste a lot of money for fake protection. Its like buying the most expensive parachute for your flight on a United 737 flight. It may make you feel better that you have it, but many instances its useless because its not the right situation or was done properly.
7e investments53 Reviews - Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes2y
Quote from @Chris Seveney:
Great post as always Don. I would also add three more,
11. even if you have capital - attending a weekend workshop does not make you an investor. I went to school for civil engineering. Do you think after the first week of taking a class on concrete design I could design a building or new everything about concrete. You do not know what you do not know, and most of those weekend workshops will have an upsell for another program... Not much is taught in a weekend except tying your shoes and making grilled cheese sandwich.
12. Preying on people in pre-foreclosure to buying their home is "helping them out". Many states have laws against this, but stop saying you are "helping them out", you are not, you are trying to take advantage of them to sell their home at a discount.
13. Transferring properties in your name to a LLC gives you instant asset protection. People waste a lot of money for fake protection. Its like buying the most expensive parachute for your flight on a United 737 flight. It may make you feel better that you have it, but many instances its useless because its not the right situation or was done properly.
It may make you feel better that you have it, but many instances its useless because its not the right situation or was done properly........
Like wearing two condoms.
- 2yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Don Konipol:
I have to disagree - kinda. If you were to buy a “basket” of real estate diversified over our entire country, then yes, you’d be correct. But, property in certain specific parts of our country have shown price declines (in real terms, accounting for inflation) over the last 50 years.Quote from @Gregory Schwartz:
6. Real estate prices always go up
Real estate prices have always gone up over a long enough time horizon on a national average..... but yes, on a year-over-year basis or in a specific city or town your experience may differ
A perfect example of this is Detroit, where a friend of mine purchased 100 SFR in 2011 for $300k, or $3,000 per house. These homes were built 50 years earlier and originally sold for $10,000. Detroit is “supposedly” making a comeback, but it went from a population of 1,650,000 to 600,000 in 50 years.
I was also going to point out Detroit.. prices peaked there in the late 80s and into the 90s when I did my very first out of state ( for me ) lending for BRRR buyers it was Detroit and it was circa 2002 to CA investors. the homes were selling for 120 to 160k at that time .. same homes sold for about 20 to 30% higher a decade before.. then as we know Detroit had one of the great crash's and just like your buddy at 3k a home many of these homes went down to the teens etc.. and have just been crawling back I dont believe the values have ever gotten back to their historic peak.. maybe one day.. but not today.. So if you bought in the wrong time you lost money and will never get it back.
Lets now talk about SWFA Lehigh Acres Corral gables same thing prices in 2007 ish peaked for the standard 3 2 1200 to 1500 sq ft rancher at about 250 to 275k each.. then the crash of the GFC I was in contract to buy out a builder all new builds for 100 of them for 125k each.. I was still nervous with all that was going on.. and well by 2010 I was buying them at the court house steps for 20 to 40k each. now they have crawled back up to their historic values .. And now you have the new crop of investors trying to build 100s of them and builders took on way more contracts than they could possibly deliver. And with lehigh there are still 100k or more vacant lots so you have a classic supply demand.
Lastly ATL land deals.. this one still bugs the crap out of me.. I was looking at pipe farms IE completed subdivisions in Henry county for 1k per lot.. thats 1k per lot 100 lot project for 100k heck it cost 30k a lot just to do the improvements.. I tried to raise money for them and of course the investors well we cant buy those they dont CASH FLOW well it was a tough time to raise money.. I did manage to buy 15 1/2 acre lots all done from a bank for 3k a lot and sold them 2 years later for 30k a lot.. In the day they were easy 100k lots.. So yes RE does not always go up in every market in the country for sure. - Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes2y
@Jay Hinrichs amen, Brother. We bought 117 lots in one development, where the developer was shot and killed while in bed with the foreman's wife. The company went into Bankruptcy and the BK judge ordered that the majority of the lots (about 3,800) including ones already sold and many built on; be organized into one brand new municipality. Taking the lots which were parts of three other municipalities and uniting them into one new "town". We bought lots as low as $50 and sold as high as $80,000. Most did not have those kinds of spreads. From 2000 to 2008 lot prices quadrupled, what a great time to be a seller. Then from 2008 to 2015 lot prices dropped around 50% to 60% sometimes more. There had been many new subdivisions created before 2008 and the overhang of new lots not sold reached out for many years. With the economic drop, and oversupply lot prices had nowhere to go but down. Fast forward to today after the recent past escalation is real estate prices; over the last 6 months 21 lots have been sold 0for between $5,000 and $25,000. So much for prices ALWAYS rising.
- 2yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @David Krulac:
@Jay Hinrichs amen, Brother. We bought 117 lots in one development, where the developer was shot and killed while in bed with the foreman's wife. The company went into Bankruptcy and the BK judge ordered that the majority of the lots (about 3,800) including ones already sold and many built on; be organized into one brand new municipality. Taking the lots which were parts of three other municipalities and uniting them into one new "town". We bought lots as low as $50 and sold as high as $80,000. Most did not have those kinds of spreads. From 2000 to 2008 lot prices quadrupled, what a great time to be a seller. Then from 2008 to 2015 lot prices dropped around 50% to 60% sometimes more. There had been many new subdivisions created before 2008 and the overhang of new lots not sold reached out for many years. With the economic drop, and oversupply lot prices had nowhere to go but down. Fast forward to today after the recent past escalation is real estate prices; over the last 6 months 21 lots have been sold 0for between $5,000 and $25,000. So much for prices ALWAYS rising.
Lehigh acres and many parts of FLA are poster child for far massive supply.. when lehigh was put in they punched in roads to 250,000 lots.. one can google earth it today and see blocks of lots with like 2 or 5 homes per 50 lots.. lots trade there when its good times for 20 to 25k and bad times 2 to 10k like a ping pong ball..
the GFC took down many land plays even out west.. But I don't want to get depressed thinking about it because you know property always goes up :) Well maybe not..
Great story though love it. - Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes2y
One friend of mine went down to Florida, in the Naples area about 2010 and bought ten rental properties, subsequently when they doubles in value he sold them.
Another friend bought a condo in Port St. Lucy about the same time for about $40,000, that previously had sold for $200,000. He rented the place to tenants that formerly owned a condo in the same subdivision and had lost their home in foreclosure. They paid their rent until another foreclosure became a rental down the street and the rent was cheaper. My friended up lowering his rent so the tenants would move, maybe an idle threat, maybe not.
A third friend of mine was looking on the web and saw some "deals" in Cape Coral. He wanted me to travel with him and buy some of these deals. We had a history and had partnered on over 200 deals so far. I declined the vacation/deal trip. He went down and got showings for a bunch of houses in Cape Coral with attractive prices, but came back empty handed. When I asked why he would pass up such lucrative deals, he explained. The best house he looked at was itself was in good condition, but the house next door which wasn't shown in the web photos was boarded up and looked like it had been vacant for years. He said there were 10 houses on the street and 3 were boarded up and abandoned, and that was a typical street that he had toured, throughout Cape Coral.
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes2y
Quote from @Don Konipol:
I have to disagree - kinda. If you were to buy a “basket” of real estate diversified over our entire country, then yes, you’d be correct. But, property in certain specific parts of our country have shown price declines (in real terms, accounting for inflation) over the last 50 years.Quote from @Gregory Schwartz:
6. Real estate prices always go up
Real estate prices have always gone up over a long enough time horizon on a national average..... but yes, on a year-over-year basis or in a specific city or town your experience may differ
A perfect example of this is Detroit, where a friend of mine purchased 100 SFR in 2011 for $300k, or $3,000 per house. These homes were built 50 years earlier and originally sold for $10,000. Detroit is “supposedly” making a comeback, but it went from a population of 1,650,000 to 600,000 in 50 years.Touché Don Touché....
Detroit is a great example of holding too long, and the boom-bust cycle.
I was in Quad Cities some time back on "field trip" finalizing launch of acquisition program in market and it hit me how significant some of the homes were. The were clearly mansions at time of construct, and now converted small multi's all sec8.
Same in areas of Minneapolis. The area off Broadway now known as "THE war zone of all war zones" was previously known as "THE fur district" and the area was all top shelf, opulent mansions.
I have seen this in nearly every market I have ever toured, an area of ages bygone that was "the" wealth center and now is the sec8 centers.
So while yes, 100%, over a long enough timeline real estate at median has always risen, specific neighborhoods have fallen from grace and generations later never recovered to par (inflation adjusted that is).
Now tillable farm land, different story, but we are talking improved real estate and that does hold trends and migration patterns that change the classification of neighborhoods over time.
This is why it is folly to believe one can simply acquire a property and just sit on it forever and all will be fine. It may be, may, but odd's are time will come that selling to redeploy will be called for to retain the classification ranking at time of entry.
- Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes2yGreat post - great points
Quote from @James Hamling:
Quote from @Don Konipol:
I have to disagree - kinda. If you were to buy a “basket” of real estate diversified over our entire country, then yes, you’d be correct. But, property in certain specific parts of our country have shown price declines (in real terms, accounting for inflation) over the last 50 years.Quote from @Gregory Schwartz:
6. Real estate prices always go up
Real estate prices have always gone up over a long enough time horizon on a national average..... but yes, on a year-over-year basis or in a specific city or town your experience may differ
A perfect example of this is Detroit, where a friend of mine purchased 100 SFR in 2011 for $300k, or $3,000 per house. These homes were built 50 years earlier and originally sold for $10,000. Detroit is “supposedly” making a comeback, but it went from a population of 1,650,000 to 600,000 in 50 years.Touché Don Touché....
Detroit is a great example of holding too long, and the boom-bust cycle.
I was in Quad Cities some time back on "field trip" finalizing launch of acquisition program in market and it hit me how significant some of the homes were. The were clearly mansions at time of construct, and now converted small multi's all sec8.
Same in areas of Minneapolis. The area off Broadway now known as "THE war zone of all war zones" was previously known as "THE fur district" and the area was all top shelf, opulent mansions.
I have seen this in nearly every market I have ever toured, an area of ages bygone that was "the" wealth center and now is the sec8 centers.
So while yes, 100%, over a long enough timeline real estate at median has always risen, specific neighborhoods have fallen from grace and generations later never recovered to par (inflation adjusted that is).
Now tillable farm land, different story, but we are talking improved real estate and that does hold trends and migration patterns that change the classification of neighborhoods over time.
This is why it is folly to believe one can simply acquire a property and just sit on it forever and all will be fine. It may be, may, but odd's are time will come that selling to redeploy will be called for to retain the classification ranking at time of entry.
Quote from @Don Konipol:
Most Common Incorrect “Facts” by the Inexperienced
1. It’s “illegal” to purchase a property without the approval of the existing note holder (subject to)
2. If a property owner stops paying on a note the lender just “takes” the property
3. That there’s ONE foreclosure law in the U.S., not 51
4. That real property ownership is indivisible rather than a “bundle” of rights
5. That real as well as personal property rights isn’t under attach by political forces in the U.S.
6. Real estate prices always go up
7. Mortgage rates of 3 -4% are the norm
8. That real estate gurus / mentors have been successful in their real estate investing careers - if they ever actually had one
9. With no experience, knowledge or capital they can be successful by attending a weekend workshop
10. Lenders are lining up to provide down payment, “gap” financing, and earnest money deposit financing so that they, with no experience, no capital, and no knowledge can purchase a property they incorrectly analyzed as a good purchase, for “nothing” down.
Real estate prices always do go up - just a matter of how long it takes. People who bought during the boom of 05-07 had to wait almost 20 years but their houses eventually were valued at more than what they paid for them. :-)
- Investor · SC NC, VA · Member since 2020 · 1k+ posts · 756 votes2y
I was really expecting one of these to be -
“I want to make good cash flow on a passive first property”
- Investor · Get yourself trained before doing something inadvisable. · Member since 2024 · 3k+ posts · 1k+ votes1yStill a good list and worthy of a "bounce" in the forum
Quote from @Don Konipol:
Most Common Incorrect “Facts” by the Inexperienced
1. It’s “illegal” to purchase a property without the approval of the existing note holder (subject to)
2. If a property owner stops paying on a note the lender just “takes” the property
3. That there’s ONE foreclosure law in the U.S., not 51
4. That real property ownership is indivisible rather than a “bundle” of rights
5. That real as well as personal property rights isn’t under attach by political forces in the U.S.
6. Real estate prices always go up
7. Mortgage rates of 3 -4% are the norm
8. That real estate gurus / mentors have been successful in their real estate investing careers - if they ever actually had one
9. With no experience, knowledge or capital they can be successful by attending a weekend workshop
10. Lenders are lining up to provide down payment, “gap” financing, and earnest money deposit financing so that they, with no experience, no capital, and no knowledge can purchase a property they incorrectly analyzed as a good purchase, for “nothing” down.
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