Is the market drowning in newbies?
Investor · Lucas, TX · Member since 2010 · 620 posts · 352 votes
I have been getting the impression over the past two years that more and more people are entering the world of REI.
When I started a decade ago I was somewhat of a pariah amongst friends, family and work colleges. Now days it seems that every man and his dog are jumping on the REI band wagon.
Just this past year I've seen work colleges buying them, neighbors buying them, friends of friends buying them. I even overhear people talking around the water cooler about how so-and-so are getting into the landlord bushiness. Just look at the number of new member introductions popping up here on BP everyday - it's getting hard to wade through them.
Is this the impression you are also getting and if so why do you think it is occurring?
And if you are one of these newbies why are you jumping in?
To me, it doesn't feel any different than 2003-2006. Lots of friends and neighbors who previously had no interest in RE used their good credit and savings to buy "rental" property back then, some with all cash. They all said they were in it for the long term. Buying an out-of-area property for $300K that rents for $1300 made no sense. It was obvious to me that they were betting on a few years appreciation. Some of my farms had 30% in one year back then. Almost everyone I know who did that let the properties go back to the back or sold for a loss (some had paid cash). Those same properties are mostly in the $150K range now, but prices are on the rise, with at least 1% appreciation monthly. And I'm seeing the same type of buyer wanting in again.
It's very difficult to discuss rental cash flow with this type of buyer. If I point out that PITI aren't the only costs, they cite the property condition and location. They really believe/hope they will have no repairs and no vacancies. If they agree with me that the property doesn't/won't cash flow, they'll admit that they are expecting the property to go up in value. But most can't crunch the numbers for ROI. It's kind of depressing.
Many newbies will be motivated sellers someday down the road. So don't hate on the newbies ????
I'm new. For me, ROI, being an entrepreneur, and diversifying out of the market are my drivers.
Learning from others' experience has been and will continue to be a pillar of my success in this business.
Mike
Supposed to insert a smiley face, not ????
Appears I need the app!
The thing that might be a little new this time around is the very high unemployment/underemployment rate (fully loaded, it's still 15-20%, including people who are working PT jobs that want to be FT, those working menial jobs below their qualifications, and those who've stopped looking), which is driving many to want to get into wholesaling, embracing "no cash or credit needed" to try and get ahead in this economy.
As an unborn newbie, I am interested in learning about being involved for a number of reasons- and had not considered it before.
1-I have been bombarded by "gurus" and this has spiked my interest. In the past there were a few "no money down" barkers on TV, now there seem to be hundreds on the internet.
2- My history of losing in the bad economy- from my employment to my savings for retirement- I want to methodically with hard work begin getting back what I lost.
3- TV definitely peeks my interest with all the rehab shows
4- BiggerPockets- if it wasn't for BiggerPockets, I would be so overwhelmed- yet by reading posts, I am beginning to see if you guys can do it I can do it- haha
5- The economy- it looks like it might begin to be taking an upswing and there looks like there are bargains out there right now, still to be had.
6- Education- I never even heard of wholesaling before I got on the BiggerPockets web site.
The unfortunate side is there are a lot of people that are thinking like I am thinking and the competition is only going to grow- the promises of the big bucks. I am not a get-rich kind of guy, and am just looking to make a fair profit, yet the promises from these gurus are strong.
As Warren Buffett stated; Finish each day a little smarter than you began.
However, I highly recommend you put no value in the real estate TV programs. Remember, the TV rehabbers and remodelers are getting a big paycheck from the Networks. You are not. The shows I do enjoy are the ones that have been around a long time, such as “This Old House”. I get ideas and tricks from the shows.
Many people get into markets to follow the crowd when they should be exiting as the old wise investors are doing.
For example, do you recall the technology hype days in the stock market in the late 1990s. One morning, while having breakfast with a friend and the owner of a successful mortgage brokerage firm, he told me he had just invested all of his retirement account money and his children’s entire college fund into the tech stocks that were doubling about every week. A few months later, he told me he lost every penny.
Beware of the hype and following trends. Think of the real estate market as you would the fashion world. It changes every year. So do the tastes of the buyers. For a few years, tile was popular, now it is stone countertops.
Robert, buying what? Work colleges like a Vo-Tech School, are they buying residential properties for student housing?
I've counted at times that two thirds of the recent posts are newbie introductions, not to discourage that, don't take it personally if I don't hit every thread to say welcome, it's daunting.
David mentioned my thoughts, seems there are about the same number of newbies that appear to have the ability (money, credit, dare I say maturity) to actually enter as investors. The greatest influx seems to be the product of the economic times, desperation and guru programs, which I hate to see really, people being sucked into RE as a quick way to riches or as an immediate income vehicle with little effort involved, just "do a deal" type approach .
I think it's great that more are looking at RE as an investment path or income source, even if they end up being the 80-90% who will fall out in 3-5 years, they will still grow with some valuable knowledge that will stick with them.
It is a great time to get in the game, the industry certainly needs new blood as the boomers get out. :)
Edwin E. Yes! Quit buying all my houses! ;)
Thanks Reginald Vickers. This is the kind of information I was trying to get from the original two faceted post. That and to stimulate conversation on the topic. I'd like to return the favor by providing some contrast from when I got into the game in 2000.
There were much fewer "gurus". The one that got me all excited (before I found out the advice that worked in the 80's didn't work so well today) was Carlton Sheets.
I didn't personally experience this but I never really trusted the stock market to begin with and seeing the tech bubble crash just cemented that distrust for me. So I had to seek an alternate investment vehicle for my road to financial independence.
I don't think there were any reality RE shows? Although watching them when they did appear did give me that extra shot in the arm.
BP didn't exist either nor anything like it that I was aware of.
In the beginning mortgage rates were much higher and rentals in less demand due to everyone becoming a home owner. I'd look at 100 properties in a 6 month period and sometimes not even find one that cash flowed decently. Descent at the time was $100/month.
For a while now (right up until this year) I was amazed with the contrast of how easy it was to find cash flowing properties, what with the low rates and high rent. Like shooting fish in a barrel.
Another leg up you newbies have on us. Information was harder to come by on the Internet. For instance, title searches online today as apposed to sitting at the county clerks office then.
If you go into it with the mindset that this is a get rich slow scheme and you have the necessary patience, commitment and perseverance you will do just fine. The good news is that it only gets easier with time. Eventually one day everything just falls into place and you're a millionaire.
I went to one of those 3 day events by one of the big gurus (my broker bought tickets but couldn't go, I went to network with other investors) last weekend. It was a room full of 300 newbies, all of them drinking the cool aid that anyone can flip house, with their help of course. The crowd was eating it up, nodding their heads like a bobblehead.
It was excruciating to sit through. It was a combination of a Tony Robbins event (I like Tony Robbins, but you sir, are no Tony Robbins), and a pep rally. 90% upsell, 10% good info. They were selling their mentorship program, different levels at 12k, 15k, 20k, and an upper level, price unknown. 180 people put in an application (this was before the prices were revealed, but I think they signed up a good 20% of the crowd, at least).
I did get some good info, and made a few good contacts. But I doubt 90% of those newbies will buy anything.
I am just waiting for all of the bandit signs to hit the city!
BP didn't exist either nor anything like it that I was aware of.
Another leg up you newbies have on us. Information was harder to come by on the Internet. For instance, title searches online today as apposed to sitting at the county clerks office then.
My experience was different. I started researching mobile home investing in 1998, and then moved on to tax sales and buying directly from sellers by 2000. I was totally self-taught off the internet. I've had a cell phone, a lap top, and an internet connection since 1998, and I'm hardly an early adapter type. There were plenty of REI message boards back then, the best (IMO) being CREonline. I learned most of of what I know about deal making, problem solving and special niches (excluding the school of hard knocks) on CREonline, mostly between 1999 and 2006. That board is virtually dead now. The amount of sharing and "mentoring" that went on was incredible. It wasn't about social networking. It was a lot of people just sharing for the love of education and shop talk.
We called wholesaling "flipping" back then. Rehabs were rehabs. Lease Options were big. There were at least a dozen REI educators selling flipping/wholesaling courses and seminars, with the same "no cash, no credit" hype as today.
Title searching and resources for finding missing owners has gotten better and more comprehensive, but I was able to do most of what I can do now back in 2000. The thing that has gotten WAY better is aerial mapping. Street views are a revelation. Also the comparable sales data available to me is 100% better.
The disadvantage I see for newbies today is reliance on technology and virtual everything. Technology is great when your target customer operates the way you do. However, there are tens of millions of people over 65 who don't do business via email or rely on the internet to help them sell a house, and many of them won't be leaving a message on an answering service that filters leads.
Tyrus S.
I do not feel people think it is just an easy game, they just want to make it.
Tyrus - IMhO How people feel about their job depends largely with what's going on with the economy. In 2008-2010 when things were really bad, jobs were really scarce and media stories of lost riches, savings and retirement accounts from the real estate fall out were all over the news - everyone was “blessed to have a job” with almost NO complaints. Now that times are good and the media is hyping how much money experienced investors are allegedly making, everyone is tired of their 9-5 and ready to be their own boss again. That is until the next bubble burst.
To answer Robert's question as to why do I think it is occurring, unfortunately (as someone stated earlier) I think that too many people live their lives through the TV. The News media says NOW is the time to buy, everyone starts buying. But this is usually when it's really time to start selling for those who are really knowledgeable about the market. Which is why I think some of the early RE market entering hedge funds are selling. They like to play shepherd and stay ahead of the herd. These days very few people think independently because it requires too much work. And it requires even more courage and vision to ACT on that independent thinking.
I think what might be more important for us all to understand, is the mentality of successful people in all industries and the mindset needed to map out the vision, weather storms while staying the course until the goal is reached. It’s almost like war in a psychological sense. And Most of us are NOT conditioned for this type of warfare.
“I got faith strong enough to cut through a coal mine
Keep the goal in mind til I reach the gold mine.
Overtime grind with no days off
But aint nothing like the feeling when it all pays off” – Stic Man of ‘Dead Prez’ on Refuse To Lose.
K. Marie Poe
We called wholesaling "flipping" back then. Rehabs were rehabs. Lease Options were big. There were at least a dozen REI educators selling flipping/wholesaling courses and seminars, with the same "no cash, no credit" hype as today.
Title searching and resources for finding missing owners has gotten better and more comprehensive, but I was able to do most of what I can do now back in 2000. The thing that has gotten WAY better is aerial mapping. Street views are a revelation. Also the comparable sales data available to me is 100% better.
Thanks K. Marie for the memories. CREonline was a phenomenal resource for me. I Started rehabbing in 2000 with almost no help from the internet even though I had been online since 1993 (just my mentioning of Compuserve and American Online authenticates my historical context :) ) - Thought REI was about rehabbing as I was taking my earnings from computer networking (a final frontier before REI imo) and plunging it into rehabs but couldn't seem to financially justify living off of it until I found CRE in 2002-2003. That's when I first heard and learned about 'wholesaling' and was able to finally leave my corp. job after my first 'wholesale flip' (and like you stated, back then we simply called it 'flipping').
I agree: there is too much reliance these days on technology. I know this when I get a bunch of requests in my inbox for me to mentor folks I've never even talked to let alone met. We're literally bypassing good old fashioned face to face networking AND social networking and going right in for what it is WE want. Almost like I'm a computer and all you have to do is enter the correct command or hit the right button and I start mentoring upon demand. Smh.
Thanks K. Marie for the memories. CREonline was a phenomenal resource for me. I Started rehabbing in 2000 with almost no help from the internet even though I had been online since 1993 (just my mentioning of Compuserve and American Online authenticates my historical context :) ) - Thought REI was about rehabbing as I was taking my earnings from computer networking (a final frontier before REI imo) and plunging it into rehabs but couldn't seem to financially justify living off of it until I found CRE in 2002-2003. That's when I first heard and learned about 'wholesaling' and was able to finally leave my corp. job after my first 'wholesale flip' (and like you stated, back then we simply called it 'flipping').
I agree: there is too much reliance these days on technology. I know this when I get a bunch of requests in my inbox for me to mentor folks I've never even talked to let alone met. We're literally bypassing good old fashioned face to face networking AND social networking and going right in for what it is WE want. Almost like I'm a computer and all you have to do is enter the correct command or hit the right button and I start mentoring upon demand. Smh.
I still hate the word wholesaling. I understand that selling a fixer to a rehabber or landlord isn't "retail". However, there's nothing wholesale about my re-sale prices or service. I'm either selling or re-selling. I would never call my rehabs "flipping". They're rehab re-sales.
I received a dozen calls from sellers last week (and no emails, which is unusual). Only two of them were under age 60. They expect me to pick up the phone, they expect to speak to me. Some use will the internet to vet me, but most won't. They won't be signing their escrow documents electronically. They'll expect escrow to call them or mail them documents. They will go in and sign if they they are local.
There are tons of sellers who can do almost everything with technology and prefer it. But I think direct marketing without the ability or set-up to respond more directly to people wanting/needing that connection is missing a huge market.
Robert Steele,
I am a newbie, and I live in the same area you reside. I am buying one home now and looking for a 2nd.
I think there are more newbies because of several factors. Yes, stock market and 401k disappointments. I still like stocks if you pick the right ones. BUT I remembered our huge loss in 2000,and diversification is key to me now.
I would think most Newbies are not making this a full time job...passive income for later payoff when I sell. If they think it is a career I think they will be sorely disappointed very soon. I was thinking 10 properties max in 5-7 years. Now I am thinking 4-5 properties max in 5-8 years.
Competition is stiff even here in DFW. Homes are flying under contract in no time. DFW is growing in leaps...per reports of our area growing fastest in coming years. Great for business, low taxes (our property taxes are the our "NO state tax"...hello 4-5k/yr on 120-175k house).
It is all cyclical. The ones losing out right now may be some full time REI and new home owners trying to find affordable housing. I think it will all calm down as I see the interest rates are rising.....kicking out those that do not have the extra cash.
Roberta Langford this is a little off topic but I'd have to agree. The property tax kills me. It's almost as much as the mortgage payment in some cases. It's depressing because even when the house is paid off almost 1/3rd of the rent will go straight to the County Tax Collector.
Not only are homes going under contract in the blink of the eye but so are rentals. A friend of mine has been trying to find a $1600 rental and every place they look at is dirty, smells like dog and is outdated. The few that are nice are gone before driving back to the office to write up the app.
Robert,
I thought I would give an aside to our market particularly if an REI is from out of state looking at this area-- our property taxes are high and it is hard to find a home.