Being in the real estate circle, I am always meeting new investors. One of the best things about new investors is their ability and willingness to learn the tricks of the real estate trade. If the investor learns the right way to do things and puts that knowledge to work, great things happen. On the other hand, if the investor receives bad advice and makes the wrong decisions, then the mistakes can sometimes be costly.
I recently met a new investor, and his story is one that I feel is important to share.
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Lots of Start Up Expenses
I met Harry at a local real estate club back in the summer. At the time, he was just starting out in real estate and had not done any deals yet. After chatting with him for a bit, I found out that he had spent a significant amount of money (over $20k) on a series of real estate courses. During those courses, he learned a ton of stuff about tax liens, setting up legal entities, creative financing, apartment investments, and even took a class on mobile home parks.
Since Harry knew that I am a CPA, our conversation naturally evolved into him asking me some tax questions regarding whether his education expenses would be tax deductible. After getting a general idea of his situation, I told him that one of the best suggestions I had for him at this time was to actually focus his attention on identifying the one direction that he will be taking in real estate.
Whether he was going to do flips, single family rentals, or mobile homes, it was important to define exactly what his next move was going to be. Rather than flying across the country to learn about all these different types of real estate investments and spending a ton of money in the process, I felt that it was time for him to put a stop to the learning and to kickstart the doing.
Putting the Brakes on Education?
I hate to say the words “time to stop learning,” because I actually feel that education is one of the most important things that we can do for our real estate businesses. Continuing education can often catapult us into the next phase of real estate investing. The best investors in the industry are lifelong learners.
I was attending a creative financing class one day, when I came across a nationally acclaimed real estate teacher who told me that even though he’s been in the industry for almost a half century, he always learns something new when he attends a class. It could be a class taught by another veteran investor or even a class taught by a fairly new investor, but even the smallest things that he learns can often help him to significantly grow his business.
In Harry’s example, however, I felt that his education was pulling him in too many directions. Instead of spending all of his time and money trying to learn everything he can about all these very different real estate products, he could redirect his resources into one specific market and one specific type of real estate. By having laser sharp focus on his next steps on the investment side, he would be one step closer to his immediate goal, which is actually making money in real estate!
Maximize Tax Benefits by “Doing”
By actually focusing in on what you can do to kickstart your investment activities, another potential benefit is making a nondeductible item tax deductible. For example, if Harry didn’t initiate offers or real estate related transactions, it would be hard for him to make an argument with the IRS that he had started his real estate business. On the other hand, if he made a lot of offers, started to negotiate deals, or worked with investors on his real estate, then he would have a much easier time justifying the write-off of his $20k education expenses.
At the end of the day, it’s not about the education itself, it’s about what you do with that knowledge.
Some people may disagree with me for saying this (and I do expect that I will get some nasty comments below), but I am a firm believer that too much education can actually hurt you. In Harry’s example, had he only taken a class to learn about single family rentals, his only decision today may have been where to invest. However, because he learned so much about the various types of properties and different markets, the choices to him seem to be endless. The result is that it will be much harder for Harry to reach a decision.
The Perfect is the Enemy of the Good?
Ever hear the saying, “The Perfect is the Enemy of the Good”? I feel like this sums up the dilemma that Harry and a lot of other new investors that I meet face. Whether it is attending seminars, reading books, or blogging on BiggerPockets, the goal is not to find the “perfect” or “best” deal. The goal is to simply empower yourself with enough information and knowledge to be able to make good decisions with respect to your real estate investing business. The truth is that there may not be a “perfect” deal. If you wait for that deal to come along, then you may be letting lots of other “good” deals pass you by.
So here is some tough love: Stop hiding behind education, and start taking action to implement what you have already learned. After all, remember that $20k that Harry spent on the education classes for all those different types of real estate? Well, before spending another $20k into education, he may want to consider using that money to purchase a $100k rental property and actually generate some rental income instead.
Either way, I want to hear from you! Leave a comment below.