Is this advice accurate?

20 Replies

After speaking with several real estate professionals, and one in particular, I’ve collected a few controversial ideas and beliefs. I don’t have enough experience to determine whether or not these are accurate assessments of the market, and I’d love to get your opinion:

1. There’s no such thing as a hidden gem anymore now that we have the internet.

2. If you renovate, you’ll end up spending the entire purchase price again just in repairs.

3. It’s better to save money now and wait for the market to turn.

4. I suggest you do FHA even if you cannot actually live in the property.

5. There are no holes in the market. It’s so saturated that there’s no room for a competitive advantage.

1. I disagree. There are plenty of hidden gems out there and will be as long as there are plenty of people in real estate who know next to nothing about houses.

2. I REALLY disagree. An experienced flipper with a trusted crew that he keeps in work month after monh can indeed leverage that experience into getting a good price on repairs and make money. A newbie, on the other had, would really have to be extraordinarily lucky.

3. Maybe in some parts of the country, like Boston, but not in others like where I live.

4. This is fraud.

5. If you have the skills to create a competitive advantage, you will enjoy one. Those skills might be a thorough understanding of a niche market, a very good understanding of construction technology, or many contacts in the real estate industry as a whole. But getting into this with minimum understanding of how certain things work will put you at a severe disadvantage. 

1 - Wrong.  They're just not as easy to find.  Besides, if you are in the right market in the first place, you don't need to find hidden gems.

2 - Only if your in a bad deal to begin with.  Analysis in the beginning is where you make your money.  If you accept a bad deal, and rationalize it into a good one, then all kinds of bad things will happen.

3 - There are no guarantees.  When is this future turn in the market going to occur?  Meanwhile, I've grabbed the deals you passed on...while you were waiting. 

"The things that come to those who wait, are the things that are left behind, by those that got there first"

 4 - ??????????

5 - Wrong, wrong and...what's the word I'm looking for?.  Oh right, WRONG!!!  This is a statement made by some one that is investing in the wrong market(s), because they have no clue how to analyze markets...and they analyze properties instead.

6 - I know, there's no #6 in your list.  I added it.  Here it is.

Find a different source(s) of info.

Just wanted to add that it depends on where you're coming from.  I have said versions of 2 and 3 to people who are being completely unrealistic, and a version of  #1 with those thinking their agent is going to find them the best house in the best school district that just needs some updating for 30% less than market, even though most of those go to neighbors' kids or friends, or their own family members, before anyone knows they're sold.   Someone who has no experience in renovating and doesn't understand the costs involved should not be buying an old house that needs a complete renovation, especially near the list prices they are being offered for.    Some areas have just gotten too high to be decent investments, and if you're only looking in those specific locations and don't want to branch out to slightly less competitive markets, then save your money and wait for prices to drop as buying too high, knowing  you won't cash flow or potential for losing money on a flip as your margins are too thin, is not a solid business plan.  

@William Sullivan What genius gave you that advice? All of the stuff is either wrong or fraud (re: FHA). While it is tougher to find the right deal in this stage of the market, it all depends on your local market dynamics and connections.

Unlike the stock market, the efficient market hypothesis does not work in private markets. Are house prices becoming more efficient? Yes - very slowly. Are they efficient? No!

There is a reason why there are leakages/holes in the real estate market. Assets are transacted privately and not on an open exchange. 

Honestly dude, stop hanging out with the geniuses who gave you these "controversial" nuggets of "wisdom".

I will agree with the above posters on pretty much all of it. I will say when it comes to number 1.

Do they realize that the only properties we put on the internet are the ones that are not a hidden gem? Hidden gems get sold before someone takes the time to write up a pretty little ad and post it online. There are plenty that get sold by a phone call that they never see sitting at home waiting for Zillow to show it.

Wow, thanks for the immediate and overwhelming response!  

I hope this didn't bring too much cynicism to anyone's day.  This is real advice I was given, and I appreciate the alternative perspective.

Here's my take on the comments:

1.  The internet helps level the playing field for information that's on the internet.  But, there's lots of offline data:  The psychological state of the seller, the intent of the seller, unlisted properties, unlisted property details, etc...

2.  I've seen plenty of great examples on BP which disprove this theory.  I'm going to assume this was an exaggeration to real me back to a "safer" market rate buy and hold investment.  I understand this can be difficult for a new investor.

3.  If I incorporate risk in my model from the start, I can mitigate the risk with cashflow and location.  Nobody wants to buy high and lose money, but by choosing not to take action I would intentionally forgo the most powerful potential feature of the compound interest formula, the exponent.  

4.  I know people who've done this and gotten away just fine, but I'd rather play by the rules.  

5.  I work in the tech industry, and I've seen companies innovate time and time again in one of the most saturated markets.  Maybe it's not easy, but I have a strong feeling a creative investor can find a niche.  Carefully analyzing our assumptions and striving for an accurate assessment of market conditions may give a slight competitive edge against those with misinformation.

I'm sure the realtor was trying to give me good advice.  He's a nice guy, but he's primarily a residential realtor.  I don't believe he owns investment property, and It's possible this advice is closer to his comfort zone.

@William Sullivan

1. In any market, I have never bought a property from the MLS or any online site. The only reason I pay attention to the MLS at all is to watch what the retail prices of properties brought to market are. I have access set up on my target zip code. In four years of watching every deal placed on the West-Penn Multilist for that zip code, I have seen maybe two possible deals I might pursue.

2. I am a renovation contractor, albeit one with a currently lapsed registration because I will no building permits in the next year. I handle most of the fixing of my own properties. There are exceptions, namely HVAC, which I pay through the nose for and get my money's worth from a local plumber who is also an investor, roofing, and major electrical. Everything else is all me. While I do achieve substantial material and labor savings by doing things this way, it's the OTHER benefits that are most valuable to me. My shower surrounds never leak. My tile jobs never pop, I know that another professional is going to do a quick job that looks acceptable but it does not make economic sense for him to do it as well as I would. The difference between a three-year thinset tile job, with three years before the tiles start to crack and pop off, and a seventy-year thinset tile job is just a matter of good technique.

3. Real estate is not one big unified market, like gold, reduced to a single number like spot price. If you're buying a rental, it makes sense to buy a residential structure that can be hardened effectively to serve as a rental than one that cannot. Opportunities in the real estate market are not wholly dependent on the economy. There are always more when the markets are bad and and fewer when the markets are good, but many deals have nothing to do with the economy. That Grandpa Jake died in the nursing home on Tuesday and Cousin Mabel doesn't want to come in from Cleveland to clean up his old house and prepare it for sale, and she just wants to sell it as it is because she can't bear the memories has no bearing on how the Dow Jones Industrial Average did yesterday.

4. William, the first time the IRS and Homeland Security show up on your doorstep with a federal grand jury subpoena will be the last time you are willing to risk your liberty for something as silly as a few thousand bucks on a down payment. They have neat haircuts and mid-range suits. They smile a lot. And the chill that goes up your backbone when they get you in a room in the federal courthouse will terrify you.

5. This ain't tech. This is not wholly a people business. Nor is it a numbers business. We are talking about land and structures erected on it. Don't make the mistake of thinking you can reduce it to a bunch of formulas, some sort of gambling system. Sooner or later, the actual buildings will come back to haunt you.

Reading this thread, I have to ask... why is that "one in particular" in this industry with such skeptical beliefs? Or is his plan to naysay everyone else out of his market so he can have it all to himself?

@William Sullivan all these statements are false. Did you seriously talk to multiple people?

1. Something can hide in plain sight. People make the mistake of passing over a deal because they say, "That looks like such a good deal, there must be something wrong with it because nobody has purchased it yet."

2. Every fix-and-flip in the world would disagree. There may be some situations where it is true, but this is hardly an absolute truth.

3. The value of time in real estate far outweighs waiting for a deal. It is very unlikely prices will drop significantly enough to make it worth the time lost. Waiting is a fools game.

4. This is fraud. Do not work with anyone suggesting this.

5. Every market in the world has room for competitive advantage. Some markets are harder than others, but there is always a niche or a way to use creativity to overcome.

@William Sullivan Opinions vary, but I think you're getting bad advice - ESPECIALLY when it comes to #4. If you think you're willing to risk a felony charge, go for it. But if you tell FHA that you're going to live there, I suggest that you actually live there. Not collect your mail and leave a couple of lights on.

#1. Hidden gems? With the shocking shortage of homes on the market, anybody who is smart enough to get their home on MLS right now will get top dollar. You'll find gems among those who are, for whatever reason, unwilling, unable or under-educated enough not to list.

#2. That is a spectacularly over-broad generalization.  I've seen homes with mid-5 to low-6 figures in profit with light to moderate rehab.  His statement would probably be more true if you demo and rebuild an entire house and you're paying bust-out retail for labor.

Just remember what I tell my kids - all generalizations are wrong.

#3.  People have been saying to wait for the downturn for years.  In the meantime, others have made mind-blowing profits.  

The problem is for those who are trying to save up money to jump into the market, the combination of slowly rising interest rates and the rapid escalation in home prices are more than outstripping the additional savings.  Plymouth County for example, where Q1 2018 average prices are up 11.1% vs Q1 2017.  

Did you save up an additional $50,000 toward a $500,000 house?  Good job.  You lost ground by about $5,000, plus you sacrificed a year of market gains.  Well done!

Could the market crash tomorrow?  2007 v2.0?  Sure.  Can I predict it?  Absolutely not.

#5.  What in the world is a "hole in the market"?

I would seek wiser counsel if I were you.

Originally posted by @Aaron Johnson :

Reading this thread, I have to ask... why is that "one in particular" in this industry with such skeptical beliefs? Or is his plan to naysay everyone else out of his market so he can have it all to himself?

Can you be more specific on who and what you disagree with? On questions of opinion, there is no right or wrong answer, just different view points.

Originally posted by @William Sullivan :

After speaking with several real estate professionals, and one in particular, I’ve collected a few controversial ideas and beliefs. I don’t have enough experience to determine whether or not these are accurate assessments of the market, and I’d love to get your opinion:

1. There’s no such thing as a hidden gem anymore now that we have the internet.

2. If you renovate, you’ll end up spending the entire purchase price again just in repairs.

3. It’s better to save money now and wait for the market to turn.

4. I suggest you do FHA even if you cannot actually live in the property.

5. There are no holes in the market. It’s so saturated that there’s no room for a competitive advantage.

 @Joe Splitrock

I disagree with 

1. Nothing is black and white regarding "gems", while this is my opinion a gem is a deal you find that others did not which is how anyone succeeds.

2. Every loan I've worked on and every flipper I've met averages 25-40% of the purchase price tops for repairs + material costs + labor... not "just in repairs" so this seems extremely negative, or location-biased at best if other locations are truly that bad repair wise.

3.Turn where? If you only buy in depressed markets you will have one or two chances a lifetime and you better make enough then to last the rest of your life. Nobody can predict the future and if they could reliably so they'd be richer than anyone alive.

4. Fraud as others have mentioned. 

5. Same as 1. If you cannot have a competitive advantage anywhere at all then by that individual's own admission they themselves shouldn't be in real estate whatsoever because it's pointless to try and compete.  The whole point of market competition is finding competitive edges in regards to product presentation to consumers.

Again, these are just my opinions on these (except 4.. that is just lending regulations). But if the individual in question takes their own advice, calling their self a "real estate professional" seems strange when he sounds more skeptical than anything.  

@William Sullivan

The biggest question you have to ask yourself is " What has the person or the people giving you these " wonderful" advices accomplished in their lives" and yes I am being sarcastic with the word wonderful. 

 Thats like taking advice from contractor about how to fix your car, or asking an overweight person about healthy nutrition and the gym. if they haven't done it you shouldn't take their advice.

Talk to the right people, make heavy use of BP because it is a great community.  You should ask them the same question " How is that working out for you?" and if they cant tell you how they've used that strategy to become wealthy and financially free #RunAway

@Will Gaston

I'm relatively new to real estate investing but still feel the need to reply to this terrible advice. 

1. This is complete garbage. If anything the internet (for those who choose to use it wisely) allows one to find even more deals. 

2. This is also incorrect as is exemplified by the numerous flippers on here that have done this successfully. If you analyze comparable properties and have a solid contractor on your team you'll know what you need to buy the property for in order to make a profit. If you find a motivated seller and are able to solve their problem you absolutely can buy the property at a price to make the numbers work. 

3. Again, I'm no expert but the multitude of experts who have appeared on BP's podcasts have said repeatedly that this is bad advice and it's simply harder to find deals during this stage of the market cycle; not impossible. Plus nobody has a crystal ball and you can't know how long the market will continue to appreciate. As always  ensure you are buying properties with strong fundamentals. 

4. This is mortgage fraud. I would avoid anyone who gives this advice. 

5. Once again if you regularly listen to BP's podcast you will hear creative ways to create a competitive advantage every week. It simply takes more effort. 

It would seem that the individuals you are getting advice from either are clueless or do not have your best interest in mind. I would refrain from listening to their opinion's any more. 

You've received some great answers. Below are my thoughts:

-What do you consider a hidden gem? Not everyone will think of adding an additional unit, redeveloping a property, etc.

- If you renovate with quality materials you are going to save yourself lots of money in the long run by not having to make band-aid repairs. If you think you can, play the stock market and short all of the housing companies and REITs.

- You cannot time the market.

- Mortgage fraud is a terrible idea. Anyone who suggests something like that should not be trusted for advise. Additionally, if you are looking at becoming an investor and treating real estate like a business, predicating it on fraud is not the right approach.

- There is so much inefficiency in real estate that there is plenty of room to have an "edge." Spend a few hours on BP and you will see how people are succeeding.

@William Sullivan

1. Beauty is in the eye of the beholder.. we find properties all the time that I consider hidden gems... other people think they are POS, but we turn them into beautiful houses!  You need to be able to see and do what others can't! 

2.  100% depends on the renovation, what's needed, and how luxurious you're trying to make it.   Paint does wonders!

3. Timing the market...  yes, please wait and let other investors get the good deals now!  My friend who has been "waiting on the market to slow down" for 2 years.. and now, 2 years later, the market has gone up a clean $20K-$40K on the houses, if she would have jumped in 2 years ago, she'd have enjoyed that appreciation, instead of paying it for someone else. 

4. Fraud. 

5. You have find your competitive advantage!   Ours is the fact we can do a lot of the work ourselves, and have the tools, so our renovation budgets are much lower, hence we can offer lower rents, hence lower vacancy !    Figure out how you can be different from the next person with $$$.     Hussle and be creative!  

There's not much else to be said, but you definitely weren't talking to real estate professionals if that's the advice you were getting. I'd be more careful who you spend your time around!

Hello William and Lynn!  I have a couple comments to both of you. First, it is very unlikely that anyone can rely on what will happen in the future.  No one can think that the prices will go down, there's no guarantee of that.  Just because something happened in the past, does not guarantee that it will happen in the future.  Yes, the Internet has many people on it that are taking advantage of other people in many ways and I have learned that most of the people on there are not speaking the truth and trying to make money by making sales by emotion, fear,and saying how you should do something and knowing that the other are looking for an easy way out and do not want to work hard.

Do not trust what the other person is saying unless you know them and they can be trusted and not just making a sales pitch.  No law is doing anything about who is showing up on the Internet and the fact that most people on their are lying. I do believe that the Internet has increased the competition on home buying and that many people are on there but not enough to know what is really happening and can be taken advantage of and most people on their are lying.  One thing that is true  that knowledge is a key to being successful.  Best wishes to you both!

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