Largest Barrier of Entry for First-Time Investors?
Professional Wholesaler · San Antonio, TX · Member since 2015 · 85 posts · 37 votes
As an individual who works with a variety of investors at all different levels in the game... and sees multiple many investment opportunities a month. I started this thread to look more closely at what holds back first-time investors from beginning to invest.
Is it lack of connections? Lack of access to deals? Limiting self-beliefs or unrealistic expectations?
What holds 99% of them back is the fact that they are dreamers. As soon as they realise it in involves a load of hard work they lose interest.
Fear of... fill in the blank.
Making a poor buy. I think the purchase, especially the first one, better be a pretty darn good deal. And that seems very difficult to find.
Fear. Feeling safe in a comfort zone and not wanting to work for change. Financing. Self doubt.
Its difficult stepping so far out from what your circle considers normal. People think what we do is crazy and could never risk or sacrifice what we do but then wonder how we earn the rewards we do, such as working less and spending more time vacationing as a family. It feels like a complete lifestyle change when you're new and there's pressure from others resisting your change
I can only speak of my own experience,
It’s A Lack Of Education!
Education Empowers you. I will continual to take advanced of the Podcast the Webinar and the Books on Investing in Real Estate.
@Thomas S. I definitely do see that.
There is a small handful of people (Gary Vaynerchuk, Peter Theil, etc.) who can predict trends and make bets on small companies that later become titans of industries. Emphasis on handful. In the real estate world as a new comer you are competing not only against other new comers, but also the handful of investors that can predict trends and have large networks/resources/etc at their disposal.
Too many investors come in expecting an amazing deal to just appear without creatively connecting resources, projecting market trends, thinking outside of the box, and of course investing the most commodity into learning (time). This mentality is akin to expecting someone to walk by you on the street and offer you stock options in the next tech giant.
@Betty Cruz I believe buying at the right price is crucial! Being surrounded by the right team is another aspect I think is HUGE! Without an contractor or sub-contractors familiar with investment rehabs that are able to work on a budget, deals can be hard to see.
@Rosetta F. I thank the Lord everyday for BP! This website/forum is one of the greatest places for REI's to learn. I also believe hands on education is largely undervalued. Getting out to rehabs and talking to other investors who have bit the bullet can be a game changer!
I agree with @Rosetta F. Lack of education is the biggest issue.
Lack of knowledge propagates fear, yes. However, it also causes people to do what others are doing instead of doing what they ought to be doing - there is often a very large and very important difference.
Let me illustrate by way of a simile...
The way a lot of newbies want to start in REI is like getting a handful of lemons and standing on the street corner to sell lemonade. Needless to say, some steps are missed. You first need a lemonade recipe, then practice making it so the product tastes like something people will pay for. Then, you need infrastructure: a card table or something, a sign, a pitcher for the lemonade, a bucket of ice, some paper or plastic cups, a cash box and money to make change, ...
Too many newbies want to go out and acquire a property before they understand the implications of doing that, knowing HOW to hold that property so professional litigants can't "steal" it from them along everything else they own, how to find the tradesmen and contractors they'll need to do any rehab or fix-ups, what they will do with it in the end (exit strategy), ...
Hands-on education ("Learn by Doing") is not under-rated, it's just not a healthy way to go about it.
Some HAVE "Learned-by-Doing" and have done very well. Others have been rather less effective. Ask Brandon Turner about his early experiences or view his webinars.
THAT is where risk tolerance come in: how much of your REI investment - both $$$ and effort - are you willing to gamble on your own proficiency? ... or lack there of?
I would add that for newbies like me, there's a patience game that needs to be played. In my case, I have an order in which I'd like to get started - primary residence first, then investment properties. I have zero interest in investing out of state, and I live in an exceptionally pricey area. Perhaps surprisingly, I have no interest in house hacking. I have zero interest in self-managing rental properties. I'm not all that keen on partnering for my first deal. I have parameters as to how I want my overall debt to look. So with that being said, I just need to be patient. I enjoy reviewing my spreadsheet models and browsing Redfin to daydream and count down to deal #1. If all goes as planned, I will be purchasing my principal residence in 2017, and investment #1 will come ~12 months later. And I'm totally okay with that timeline.
I should also add that I am no stranger to hard work, so this is not an issue of wanting everything to come easy. If I'm going to spend an extra x hours per week (outside of my day jobs) hustling on real estate, I'd rather be managing a flip, for example, rather than trying to find wholesale deals. So part of the game plan is doing a flip a year after I get my principle residence. If my financial situation changes such that the timeline accelerates, that's awesome.
I have talked about my real estate goals with friends and family members, and while they wistfully say "I hope one day maybe...". Thanks to BP, I feel pretty darn confident about my plan so I can say "I know one day soon...".
Biggest barrier for me is that I need to unlearn the ineffective and relearn the most effective way to invest in real estate. I really do know a lot about what I am getting into.
I was the landlord's daughter for my entire life. Now I would like to invest in real estate of my own. I grew up in New England and now live in the Midwest with a family of my own. At the time of my parents' passing several years ago, they still lived in New England, where they raised our family, worked full-time, and invested in several 3 flat rentals.
While he was alive I asked my Dad if we could "partner up". My idea was that we could use some of the equity in the "free and clear" flats that he maintained himself and buy larger commercial/multi-unit properties that we could purchase here in the Midwest. I could manage them here, "after I get off work, just like you Dad! More units More profit! Besides you taught me everything you know and I've learned even more ways we could manage them more effectively." Well, Dad thought I had lost my mind. He would hear nothing of it. "I paid for you to go to college! Now you're all degreed and have respectable careers. You don't need to be doing any of this. Besides, I didn't raise my daughter to be a landlord...!! Bless his Ole' school heart. He planted this real estate seed in my DNA and then didn't understand why I wanted to be a real estate investor. What I was really attempting to do was to relieve him of some of the signs and symptoms of the "tired landlord syndrome" I diagnosed as setting in during the years following our leaving the nest. I argued that I spent the first 18 years of my life before college as a landlord! As a child growing up with mom and pop landlord, I reminded him that my siblings and I spent countless days and nights doing our homework, rehabbing, getting up to go to school the next day, cleaning up after tenants, fixing faucets, unclogging toilets, calling locksmiths, getting ready for HUD inspections, collecting rent, writing receipts, and leaving with the check or cash payments (along with the receipt book in the basket at the front of my bike) and going to court with my Dad to threaten evictions. (he never actually evicted one tenant in 40+ years). He just made life rather uncomfortable until they moved out on their own. He refused to invest in management companies after we ( his official offspring management company) began managing other aspects of our lives.
Anyhoo here I am many years later with the properties back East, me still living in the Midwest, and real estate investing in the blood. I would like to do what I asked him to do 30+ years ago when I got out of college. My dreams is for my sons and my daughter to learn that they can have careers and team up with me to re-invest grandpa's equity. They are creative and I would love to see how far we can go with more effective real estate management techniques. Taking the journey without, my parents, the people who introduced me to the world of real estate, could be considered another somewhat of an emotional barrier. Hopefully I will stay positive and focus on feeling like they are still here with me to share in their successes.
I think there are two camps of first timers - those that don't take the time to educate themselves properly and jump in only to be eaten alive...and they quit. Then there are those that overeducate themselves and fear holds them back from taking action, so they continue to read books, listen to podcasts, browse the MLS and dream of investing...then eventually, they quit or just never get going.
I think a balance between education, action, and PERSISTENCE is necessary.
Looking to make my first purchase, I've done the research, driven by the property, etc. Unfortunately, can't get a response from a certain person who I'm going through. Considering I'm just starting and I plan to make a decent amount of purchases (since I'm buying land), it would be nice to get more than the run-around for a month...
I think the main thing for me is the lack of capital. I have a decent amount tied up in stocks that for the most part, I plan on keeping there. We also just purchased our first house, and with a wife and 9 month old I can't be as risky as if I was a single investor. My goal was to build capital through investing in some land throughout Texas, then from there hopefully work my way to houses (haven't decided on my strategy there, but that's a ways away anyways).
Time really hasn't been a big issue for me, aside from having to communicate to people during business hours when I'm at work in an office.
I'd say it's the inability to understand and analyze risk. This can be mitigated by education, patience, and mentorship. But you have to be willing to analyze your fears, rank them by probability, and come up with strategies to handle them if they arise.
There is a huge difference between scary and dangerous. Getting into real estate is scary for me. My husband and I are putting a lot on the line to make an educated, well thought out go of this (we have two young kids which means it's not just s risk for ourselves; they're along for this ride). Deciding it's too risky and working a W2 for 30+ years is truly truly dangerous to me. I know the outcome of that scenario and it is the opposite of everything I want in life; it also comes with no security and little in the way of managing the risk of layoffs, bad bosses, etc.
If more new investors saw their fears as risks to be analyzed and mitigated I think they would take the plunge. I'm beyond thankful for BP, without which I'd still be daydreaming of real estate.
MINDSET, in my opinion, is the biggest barrier.
Yes, you need knowledge (which is readily accessible on BP) and that only gets you so far. I believe this business is 90% mindset, 10% doing.
For me, the biggest hurdle came from the negativity that came from friends and family. We live in a culture of go to school, get a job, save some money, and hopefully retire one day. Debt is bad, and savings is good. The sheer amount of negativity from the 'lemmings' in my life who had no problems letting me know how crazy they thought I was for taking on so much debt, or how that will never work ect. They were so convinced that the stereotypical way to wealth was the correct approach, even though it wasn't working for them.
For the 90% of you who have read Rich Dad, Poor Dad, my family had a poor dad mentality. Once I began ignoring their criticism and got up and off the couch and took control of my finances, things started happening.
I jumped in on a deal, 6 percent cap rate, 5% CoCROI, not excellent, but broke the fear of doing this on a new duplex, so no capex for a few years. Im sure I could have done better, but Im still learning and willing to admit I did not get a first killr deal, but it cash flows and will allow me to learn more about PM.
For me it's the acces to capitol, being new to this site and many others has shed a ton of light on many opportunities to pursue. As for homes (Mult, single and new construction) the opportunities are abundant! Not knowing how to access the funds or proper ways to structure the deal has been my drawback. Contractors, suppliers, realtors and private owners are what I do. Diving in and finding a financial partner has been the holdback.
I think it's the fear of not finding that perfect deal that holds new people back. Instead of finding something that's a single or double they want that home run and can't find it.
I know when I was buying my first rental I thought "what if something better is out there?". There may have been better deals but there will always be better deals.
I think it's the fear of overpaying and getting stuck with the property. The original idea is financial freedom but "what if" makes one hold back on getting that first decent deal. To some extent it's true.. you want financial freedom and by getting a bad deal and getting stuck with it and losing everything you already have is the single biggest thing that holds people back. You want things to get better and not worse!
Also, all these gurus make it seem that there's tons of easy money to made but when an individual gets serious and starts to analyze properties, he/she finds there aren't the deals that these guru's preach. So the search for that killer deal keeps going on & on.. lol :P
@Peter Schuyler good job my first deal wasn't supper either but lead to connections that produced good deals before prices went up and inventory's dropped off. It also provided expierence and is still a solid investment today although I made some mistakes. My loan person told me yesterday while I was applying for yet another loan that I was pretty good a finding solid deals. She loans to a lot of investors so it really meant something. @Ben Zimmerman I have often thought that the difference between the have and the have nots is how stubborn they are about sticking to traditional thinking about building wealth. Stand by your guns or ignor it or do whatever. It doesn't go away with modest success either. Then when you hit the big time the label changes to being greedy or lucky or something else. Good luck. Don't give up. I can already buy out most of the nay Sayers without much trouble. They worry if they don't get any overtime they can't make a credit card payment in one breath and tell me I'm going to loose everything in the next. My property payments are well over my net from my w-2 job, and I pass on the overtime if it's going to interfere with real estate. I can make more in the real estate. RR
A failure to understand what it takes to build a business...any business.