Experience or Education? GETTING STARTED in Real Estate Investing

Becoming a real estate investor can be daunting – where do you start? Do you sign up for a weekend seminar, watch youtubes, and maybe read a few books? Or just dive in, purchase a property and then learn through experience? My answer? A combination of the two.

Imagine standing on the edge of a beautiful lake on a hot summer’s day. Before you is a nice beach which gently slopes down into the blue water, and alongside the beach is a dock which extends out into the lake. Are you the type of person who likes to wade in slowly, or sprint down the dock and dive in? Which approach is better suited to real estate? Let’s examine some of the pros & cons of each.

Just Dive In! (Experience)

Most people already have a general knowledge of real estate – we’re familiar with buying and selling houses, and we understand the concepts of rent, mortgage payments, tenants and landlords. This familiarity can make real estate a lot more attractive than the stock markets or venture capital. Also, real estate is a pretty forgiving industry and houses tend to appreciate in value over time. Long-term appreciation can help compensate for an inflated purchase price, and even negative cash flow. The first property I owned lost money 75% of the months I owned it! (the rent didn’t cover all the costs of holding the property, so I had to pay the shortfall each month while a tenant lived there). However, with steadily appreciating prices, my equity growth more than made up for the negative cash flow, and in the grand scheme of things, I was making a profit.

A great way to dive into real estate is to move! Many investors start out by simply moving into a new house, without selling their old one. The benefit of this method is that you are familiar with the property and neighbourhood, since you’ve personally lived there. You know all the costs, maintenance needs, and can easily determine what type of tenant your home will attract. This minimizes surprises and makes the leap into property invesment a lot less daunting.

Another strategy that involves moving is to buy a duplex or a property with an income suite, and then move into one of the units while renting out the other(s). Being neighbours with your tenants definitely has its drawbacks, but many investors feel more comfortable keeping a close eye on their first investment property.

Einstein is credited as saying, “The only source of knowledge is experience”, and many real estate investors would agree – encouraging you to just take the plunge and go buy your first property!

Better to test the water first (Education)
Looks can be deceiving, and diving into a lake that turns out to be 3 feet deep can be disastrous. In the same way, real estate investing can turn out to be perilous to your financial health. Many landlords have lost huge sums of money through dropping values or lengthy vacancies, or carried the emotional burden of a problem-tenant that caused extensive damages and/or lost income through unpaid rent. In order to avoid these horror stories and learn from the mistakes of others, it can be wise to start with some education before taking the plunge into real estate.

Many investors embark on their real estate journey by attending a weekend seminar, reading several books, joining a local association, finding a mentor, watching youtubes, reading blogs and magazines, purchasing a real estate course, listening to podcasts, or employing a combination of all of the above. Knowledge is powerful, and if you take the time to read customer reviews before booking a hotel room, or spending a few hundred dollars on a new phone, surely it makes sense to do your due diligence before spending a few hundred THOUSAND dollars on a property!

One of the best reasons to get educated before starting out is the importance of developing a strategy. There are countless methods for investing in real estate: Do you want to invest in commercial or residential? Are you planning to buy single-family homes, condos, apartment buildings or undeveloped land? Will you wholesale, renovate and flip, use rent-to-owns, buy & holds, student rentals…? Are you planning to fund all the deals yourself or seek joint-venture partnerships? Education can help you answer these questions and chart a strategic path that suits your situation and lifestyle, before making any false starts.

However, one danger with education is known as ‘analysis paralysis’: getting overwhelmed by all the information and never feeling like you are ready to pull the trigger and actually buy a property. There’s always another book to read, another seminar to attend, a new listing coming on the market that may be ‘perfect’, or a market condition that you simply must wait for before you begin. Some hopeful investors spend years gaining information and making plans, but never actually ACT on the knowledge they’ve acquired.

Another danger with education is falling prey to the gurus and experts who promise overnight success and riches, but are really just marketing a system that may or may not work in your geographical area or real estate niche. There is TONS of free information out there, and it is best to digest a variety of content before committing to one ‘system’ or ‘expert’ to guide you on your journey. Beware of seminars or systems that actually try to sell you real estate – you must do your own due diligence before subscribing to an exclusive membership, and certainly before buying any property.

Wade to your waist, and then dive! (the Combo)
The best way to capitalize on the advantages and avoid the pitfalls of each approach (dive off the dock or wade in slowly), is to use a combination of the two.

You will not regret educating yourself with the best books, blogs, podcasts, youtubes and real-estate networking groups in order to successfully launch your career as a real estate investor. (email me for recommendations).

Once you’ve chosen a strategy and a target market for your first investment property, find a couple homes that have potential, and ask a mentor or experienced investor to analyse them for you to see if the numbers will work. Combining your education with their experience will give you the confidence to wade out a little bit, and then take the plunge towards financial freedom through passive real estate income!