Real Estate Investing is NOT Easy

8

The video camera, gear pack and tripod weighed about 80 lbs.  The temperature was a balmy 112 degrees.  I stood there in the middle the street with the soles of my shoes slowly sinking into the hot asphalt, the sun beating down on my fair skin.

A block away a man had barricaded himself inside his house.  The SWAT team was on the scene and after three hours neither had made a move.

It was the perfect time for me to reflect on my decision to become a TV news cameraman.  Is this what it’s going to be like for the next 30 years I wondered?  Will I be camped out like this in front of yellow crime scene tape and drenched in sweat with a farmer’s tan until retirement?

I decided right then and there that if I was going to continue working this hard I needed to get paid a lot more money.

Inspired by the book Rich Dad, Poor Dad, written by Robert Kiyosaki, and a year later by a couple of real estate investment gurus, I quit my job schlepping camera gear to invest in real estate full-time.  Their books and tapes said it would be easy.

I suppose compared to digging ditches (or lugging around a heavy video camera) they were right.  But I would quickly learn the truth – real estate investing is hard.  It’s also complicated, stressful, time-consuming and frustrating.

With fixing and flipping:

  • You can’t be certain what a buyer will pay for your fixed up house.
  • You can’t be certain how much it will cost to fix up your house.
  • You can’t be certain how long it will take to sell your house.
  • You can’t be certain your trades will even show up to fix your house.
  • You can’t be certain the house will appraise for the contract price.

With buying and holding:

  • You can’t be certain the house will cash flow.
  • You can’t be certain the tenant will pay their rent on time.
  • You can’t be certain about maintenance costs.
  • You can’t be certain the tenant will trash the house before they move out.
  • You can’t be certain your property management company will have your best interests in mind.

These uncertainties make real estate investing hard.  But that’s also what makes it so rewarding.  I’d much rather work hard, on my terms, than have my shoes stuck in the pavement.

About Author

Marty (G+) is the Chief Financial Officer for Rising Sun Capital Group, LLC, a real estate investment firm based in Gilbert, AZ. His firm purchases homes at the courthouse steps and public REO auctions. They have two exit strategies, either fix and flip or seller financing.

8 Comments

  1. I agree real estate can be brutal. Every risk you mentioned can be mitigated and managed. Not eliminated, managed. Be conservative with your estimate for resale. Research similar houses that have SOLD and be realistic. If you are selling a 3/2 rehab for $125, there should be recent closed sales for 130 or so. Your $125 house must be the sharpest, best on the market. Buyers with credit are rare and they know it. They can be extremely demanding. Regarding repair costs, experience is the best teacher. I know what a roof, furnace, central air, hot water tank carpet, cabinets, faucets, tubs, shower surrounds, etc. cost. Always budget for plumbing and electrical issues. Always budget for contingencies. Work with reputable contractors. No handymen. Reputable contractors are busy, even in this recession. If they don’t show up, they don’t get paid. Always hold as much of their money as possible and have a good solid agreement in writing. There are many, many good books and seminars on how to rehab and flip and manage contractors.

    Budget holding time into your plans. Taxes, interest, utilities, etc. The gurus conveniently forget about holding time and closing costs on BOTH ENDS of the transaction. It will always take longer than you think.

    Regarding buy and holds, if the property does not cash flow, do not buy it. You should know the market rent before you purchase. Again, be conservative. You do not want to be the highest priced rental. You will only attract the worst renters. You should know your P&I payment, taxes, insurance, etc. before you buy the property. I always try to have the renters pay utilities, if possible.
    You will have some renters that don’t pay. Have a solid lease. Serve them a 5 day notice and start eviction. It is not fun, but you have to do it. Again, there are some very solid resources out there on how to screen tenants and manage rentals.

    Bank REOS and HUD repos are selling at the lowest prices in 20 years in our area. I am buying nice brick bread and butter houses for dimes on the dollar. If you take the time to learn the industry and commit to being an organized, professional investor and treat this like a real business, your odds of success have never been higher.

    • Gary, thanks for the breakdown. I’m assuming you’ve been investing for a while. No doubt it took you some time to figure all this out. Would you say your journey was easy?

      And I’d love to know where you’re buying “brick bread and butter houses” for dimes on the dollar. Maybe we can partner up. I’ve been looking for other markets to flip in and discounts like you describe are tough to find.

      • Hi Marty,
        I have been investing for 10 years. I have lived through the good years and the bad. I invest in metro Chicago which has been pretty hard hit by foreclosures. HUD and the banks are aggressively discounting. You still have to be very careful when picking locations and properties. I look at many houses each month.

  2. This article sounds a lot like “Uncle Bob” or “Brother-In-Law Bill”…the guys who have achieved precious little in their lives but will gladly blow holes in your strategies, and wont have any insight on how to be successful.
    Pointing out only one the risks of RE investing without mentioning how to mitigate them or what the rewards are is an incomplete article and serves very little purpose in educating the reader.

    • Trainer, my intent was not to discourage people from investing in real estate but to explain that it requires a lot of effort. There are plenty of articles here on BP, several written by me, that explain how to mitigate risk and describe the rewards of real estate investing.

      Signed,

      Your Uncle Marty

  3. Both the article and the response from Gary are helpful. It makes me realize that I’m not the only one with these fears of flipping. And the comments from skeptics and people who don’t have the “risk” gene sometimes get to me like “maybe I am just fooling myself” but I know that I love it! I get tired of my realtor sister-in-law apologizing when someone has a showing at my house and decides not to buy it. I take it with the grain of salt. I’m still learning and I’m not planning on giving up. Thanks, Gary, for the tips and guidelines. They’re going in the permanent file!

    • Mariana, your local library and Amazon have dozens of books on real estate, flipping, landlording, and a variety of other useful topics. Read everything you can. Find an investor group in your area and start attending meetings and talking to others. Partner up with an experienced investor. Ask if you can shadow them for a while.

      There are many ways to gain experience, but ultimately you have to take the plunge! Good Luck

  4. I, for one, agreed with every word in the article and Gary’s reply.
    It takes time, efforts (and mistakes, more often than not) to gain expertise of the sort that enables people to secure the right deals at the right conditions, and usually involves, first and foremost, putting together the right team. In Japan, where we deal mainly, tenant worries are virtually non-existent (as are capital gains :)), so getting the numbers right is top priority.

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