Rule #1 of Real Estate Investing – Caveat Emptor

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Our good friend, Bryan Casteel, the ProHabber, just informed us at BiggerPockets.com about an article in the New York Times about buying and flipping property online. Actually, he posted a serious rant about it!

I read the article . . . I read the rant . . .

There are some troubling things that this article brings up. I have to agree with you on most of your points, Bryan, and I will emphasize your main point:

It is your duty as an investor to do your homework!

What most of the books and gurus emphasize is how easy it is to buy and flip real estate. What many of them leave out is that YOU MUST DO YOUR DD (due diligence) BEFORE GETTING INTO ANY PROJECT!

Buying a house is not like buying a new flat-screen TV, even if both cost a few grand. The cheap properties are cheap for a reason. They have problems!

You’re not going to go to some slick used car salesman and trust what he tells you regarding the car you’re looking at, are you? NO! You’re going to beware, and hopefully bring your friend, the mechanic, with you to look at that jalopy.

I’ve invested in some shady neighborhoods, but I would have never done so without seeing the properties. I’ve seen a ton of properties that looked great on paper or online, but after investigating the neighborhood and condition, decided to move on. Flipping is an art – it requires skill and education. It requires investigation.

Not every deal out there is like those mentioned, but people think for some reason that if a property is cheap, then it is great for flipping. They think that it is just another $10,000 on their credit card or paypal account.

Caveat emptor – BUYER BEWARE

I feel bad that people have gotten taken by “unscrupulous sellers,” but one man’s mansion is another’s shack. The first lesson that investors and anyone else who thinks they can make money with real estate MUST LEARN is to DO THEIR HOMEWORK.

I just wish that all the the potential investors out there would just come and read this post before getting all googly eyed about the promise of huge profits flipping property. I wish the Gurus would just be straight forward with people and start with this lesson.

Class is in session people! Learn how to invest before jumping in!

THE FIRST RULE OF REAL ESTATE INVESTING IS TO DO YOUR HOMEWORK!

This is a business. Learn to swim with the sharks before you get bit.

About Author

Joshua Dorkin

Joshua Dorkin (@jrdorkin, Google+) founded BiggerPockets.com when he saw a need for free, trustworthy information about real estate investing online. Over the past 12 years, Josh has grown the site from self-funded hobby to full-time job and passion. Today, BiggerPockets brings together over 600,000 members, housing the world’s largest library of real estate content, iTunes’ #1 real estate podcast, and an array of analysis tools, all geared toward helping users succeed.

3 Comments

  1. Bryan Casteel on

    Josh, thanks for adding on. You bring up another aspect that I didn’t think to touch on and that is how the Gurus make this business seem so easy and what that does to the quality of the investors. This is a problem in my opinion and I continue to be amazed at how different the actual business is from the expectations that I had from the Gurus that I paid to see.

    When my partner and I got to the end of our first year in business, we stood back, with no profits and a bunch of properties and bills and we were amazed at how naive we were when we got started. If you had asked us at the beginning of the year if we knew everything we needed to know, we would have said “Absolutely” because of the education we had paid for. In reality we knew just enough to get into the business, but not enough to truly succeed. In order to succeed we needed to make a million mistakes and learn from them. We learned a lifetime of lessons in that first year that you just can’t get from books and tapes and a weekend RAH-RAH session. That is why I started ProHabber, to try to pass along some lessons that I learned the hard way. Everyone will have to learn from their own mistakes anyway, but maybe I can save one or two mistakes by writing them down in a public place.

    Those that can’t handle the truth about how difficult this business is but still want to believe in the dream sometimes let their morals bend and try to profit from screwing other people. Beyond that, I am sure that many of the worst offenders didn’t even learn from the Gurus, but from a buddy who heard from his uncle about the techniques from the Gurus.

    It is a problem, but just like eBay, you can’t blame the Gurus for someone that doesn’t have enough ability or brains or moral fiber to make it legitimately in this business.

  2. Colby Callahan on

    I couldn’t agree with the both of you more. I am a commercial loan officer, and I have grown very tired of other “professionals” sugar coating deals until investors are too far into the process to turn back. They quote a rate they know they can’t hit, with terms their lender may not even offer. I have quoted a real life rate with terms, and the poor saps go down the road of purchase contracts, etc with another lender based on verbal quotes. Once the purchase contract expiration is coming into sight, the lender calls to say, “I’m sorry, your loan doesn’t qualify for the rate and term previously quoted due to…Blah blah blah. Your new rate is something horrible.”

    The oldest trick in the book and it still works today. This trick also still irks me today. Besides my rant about bad brokers, I have written a few articles I think investors (especially new investors), may find helpful. They discuss some of the potential problems borrowers should realize, and how to prevent such things from happening.

    Articles regarding…
    “True Net Operating Income”
    “How to Determine Income Property Value”
    “Park Owned Mobiles – Worth It?”

    Can currently be located on http://www.GoArticles.com. Just search by Author for Colby Callahan.

    I will be adding more, let me know if there is an issue you would like me to address. All comments are appreciated. Emails can be addressed to [email protected].

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