5 Harsh Realities About Real Estate Investing Every Newbie Should Know

54

I just got home from my local real estate club meeting. I enjoy going to these meetings for several reasons. One, I usually learn a thing or two that will help my business. Second, I get to network with others in the real estate investing biz to share success or horror stories. And lastly, I get to meet a lot of first time visitors or newbies who are full of excitement.

Newbies are people who are in the midst of discovering real estate investing. Their eyes are sparkling with the thoughts of the millions of dollars they are going to make, and they are just looking for a way, any way, to get started. They realize they do not know a lot about investing and are looking to rectify that through our real estate club. The thing is, they do not realize just how much they do not know.

When they get around to talking to me, they always ask a series of rapid fire questions. They want to know how I got started, how many units I own, how I financed them, how I screen tenants, etc, etc, etc. I will usually answer these questions and enjoy their look of excitement. I likely had the same look when I was in their shoes a few years back. In answering their questions, I also try to rain on their parade a bit. Not because I’m a jerk, but because it needs to be done. Newbies just do not realize how much they do not know, and someone needs to tell them before they get too far into this thing.

Here is what I often tell them.

5 Harsh Real Estate Investing Realities Newbies Should Know

1. Real estate investing involves work.

That’s right, you have to work at being successful at real estate investing. So many get sucked in by those late night infomercials selling the dream (and it is a dream they are selling) of living on some beach while real estate magically makes you rich. There is nothing wrong with having the goal of living at the beach, and real estate is certainly one way of achieving that goal. But if you think you can simply forget about things and ride the waves all day, you are mistaken.

Related: 3 Ways BiggerPockets Can Seem Overwhelming to Newbies (& How to Avoid Them)

Real estate investing is a business, and running a business takes work. Now, work does not have to be painting or sanding floors (it can be). Rather, work means keeping things going, putting out the fires, finding new income streams, buying and selling, learning new techniques, setting up and refining systems, and so on and so forth. There is no magic formula to get out of work.

focus

2. Becoming successful takes time.

Becoming a successful real estate investor does not happen overnight. The belief that it can happen overnight is often part of that dream being sold by those late night infomercials and some of the so called gurus out there. Sure, it is possible to hit a home run your first time at bat, but it is unlikely. And yes, some folks do progress faster than others depending on the strengths and characteristics they possess.

For the most part, however, becoming a successful real estate investor is a long, ongoing process. Becoming successful and quitting your 9 to 5 job can be done. I am proof of that. But it is unlikely it will happen overnight. One reason is because…

3. The learning curve is so steep.

Imagine someone has asked you to design a computer program from scratch. Could you do it? Unless you already are a computer programmer, the answer is likely no. To do so you would need to gain certain knowledge and skills and start climbing that learning curve. You would need to read books on programming, possibly enroll in school or attend weekend seminars, and network and discuss options with other programmers. Eventually, you would be able to program something in perhaps six months or a year. But how successful you would be would depend on how well you climbed the curve.

The same is true for real estate investing. I often liken starting out to enrolling in graduate school. There is going to be a lot of reading materials. You will attend a lot of seminars and networking events. You may even spend a bit of money on a real estate course or two. Newbies do not understand all of the things they have to learn about, such as real estate pricing, rental rates, rehab costs, financing, insurance, tenant screening, marketing, who is buying, who is selling, where to invest, where not to invest and on and on and on.

How long will that take before you can do your first deal? Depends on how quickly you can get above the curve, but it is unlikely it will happen overnight. And you know, once you start to really learn about real estate investing you may find that…

4. You might not like real estate investing.

Real estate investing is not for everyone. Remember that infomercial you saw? They were selling you a dream, not reality. Everyone likes the dream, but the reality of the situation can hit some people pretty hard. Some will discover they are just not cut out for it. Others will discover that they like or prefer the security of the 9 to 5 job. I always tell newbies to get their real estate toes wet first and to not quit their day jobs right away. Finally, I like to tell them that…

rehab-mistake

Related: Newbies, Want to Break into Real Estate? Above All, DON’T Do This

5. You need to make sure your spouse or partner is on board.

You can have all of these great plans to become a super wholesaler, but if your significant other is not on board with your plans, you are going to have some very difficult times in the future. Becoming a full time real estate investor is a radical step for most, and many will simply not understand it. I highly encourage folks to bring their spouses to the REIA meetings and get them involved in their plans. After all, two heads are better than one, and you do not want to be in a position of having to choose between the two.

I hate to rain on any parade, but experience has told me it is necessary sometimes. If newbies are going to be successful, they need to know and think about these things before going in. On the flip side, if newbies work hard, study hard and like what they are getting into, they may have just found one of the best things in life that will allow them to achieve many of their dreams — perhaps even a beach house.

[Editor’s Note: We’re republishing this article to help out newbies who have found BiggerPockets more recently.]

What harsh realities would you reveal to newbies if given the chance? What were the most unexpected difficulties you encountered when you were starting out?

Leave a comment, and let’s talk!

About Author

Kevin Perk

Kevin Perk is co-founder of Kevron Properties, LLC with his wife Terron and has been involved in real estate investing for 10 years. Kevin invests in and manages rental properties in Memphis, TN and is a past president and vice-president of the local REIA group, the Memphis Investors Group.

54 Comments

  1. Curt Smith

    I totally agree with your comments about extreme work, many hours, self sacrifice and MUST have your spouse on board. I would not be able to do our rental business without my wife working just as hard and believing in the end goal as much as I do. We did 6 new rentals last year. Just the two of us and hired contractors. It’s not possible to be successful with a team.

  2. Brian Gibbons

    Real Estate is a team sport, and you need to sell and negotiate and promote.

    Are you reclusive, shy? Be an Options Trader. Stay away from rentals and networking.

    Are you an egomaniac? Do all opposing viewpoints sound stupid to you? REI is probably not for you.

    This is a “Dale Carnegie” game, people skills, not analytical skills, are trump. But being able to price a rehab is important (See J Scott’s Rehab books in the Store at BP).

    Well done, Kevin!

    Lastly stay up on Seller Financing, Dodd Frank, get a RMLO, in case you want to buy on terms.

    I love, love, love this article!

    If people do not like you, trust you, you are dead in real estate.

    • Kevin Perk

      Charles,

      Use your people skills to bring people together and make deals happen. I know it sounds cliche, but make the win/win scenario come together. Create those and you will become successful.

      Good luck and thanks for reading,

      Kevin

  3. Great report. How true is everything you say. If your spouse is not on board and a willing participant sharing the work, you are doomed to failure from the start. I have seen many failures in 40 years as a REI due to a belligerent and complaining spouse rather than a co worker sharing the load. As for me , my wife handles the paperwork and rentals ( plus loving to paint) while I do the labor and more basic contractor work.

  4. You are so right, there is an almost unlimited amount of articles on incredibly interesting subjects. For myself it boils down to; there was something I wanted to know when I jumped on BP, does this article answer my question?
    No but it does adjust my focus and reinforce the old concept of finishing what I started before I get all consumed by what guy in ( pick a place is doing with something I’m not doing ).

    • Kevin Perk

      Gary,

      Focus is part of it. But while focusing, also keep yourself open to new ideas and techniques. You may not be ready at the point in time you hear it. But later on it is funny how things come back to help you later on.

      Thanks for reading and for commenting,

      Kevin

  5. Rocco Grossi

    Good article. I myself, am a “newbie” and still have not fulfilled my goal of buying a duplex to live in and rent other unit. Reason being I am saving capital for closing and rehab costs. I do not think this is emphasized as much as any of the other things that was mentioned in the article. People need to have money in the bank to get started as well!

    • Kevin Perk

      Rocco,

      Good for you for understanding that cash is king. Sure we all like to use OPM, but there is nothing like having some cash in the bank.

      Keep looking for that duplex, that is how I started.

      Thanks for reading and commenting,

      Kevin

      • Jen Shrock

        While I am building capital to use for my first purchase I have been looking at online sources for real estate listings and “practicing” what I can about evaluating a deal, without fully having access to all of the numbers yet. I have found that many of my instincts must be going in the right direction because when I find something that is just listed that really catches my interest and gets the “well that is a really good deal” thought in my mind, it is generally under contract within 1-3 days. This is helping me to gain confidence that once I have the funds and am ready to run real numbers on something, I will be able to spot a deal and jump on it before it is scooped up by another investor.

        While at my 9-5 job the other day, our one manager made a comment that I really do think translates across from manufacturing into real estate or any other business. He was commenting about us, as a company, having so many projects started/in process but not finished to the point of making money, that we have not made money the last couple of months, at least not much. We haven’t lost, just not made. It is something that I thought is so true with any business about remembering to temper your excitement and not take on too much at once to where you are stretched to the very edges on things, but to leave a little buffer room just in case Murphy’s Law rears it’s ugly head. It would really suck to get dragged down by over zealousness.

    • Kevin Perk

      Rolanda,

      There are those who meet the challenges and work through them and those that do not. It is amazing the challenges that present themselves when you are an entrepreneur and on your own. Sometimes they never seem to stop. Solving them only makes you stronger and smarter as you say.

      Thanks for reading and sharing,

      Kevin

  6. Ruth Ann Morris on

    I appreciate your article. It is true that your spouse needs to be on board. I am not a newbie (bought two duplexes in 2009 and turned our sfh into a rental in 2011). Up until last year, my husband was not on board with me, which meant I did almost all the work myself. When major expenses came about, he griped about the money being spent. Last year in Dec. I sold one of the duplexes for a $30,000+ profit. Now he wants us to eventually build up to an apartment complex and he is allowing me to buy two more duplexes without griping. I still do most of the work, which I don’t mind, but at least he is passively supportive. It is a lot of work, and it takes time to make money from your investments, but it’s worth it!

  7. Tyler Flagg

    Great article Kevin!…I’m particularly fond of #5. When I first decided to get into real estate I asked my girlfriend at the time (now fiance) to read a few e-books on the topic. Ever since then she has been 100% on board, so I’m glad that I did. Finances are one of the top reasons people get divorced, so it’s definitely important for new investors to have those conversations up front.

  8. jon rylander

    @kevin perk Great article. Im a newbie myself and its easy to daydream about the beach house and all the problem free properties you own but people have to snap back to reality and realize you will need to pick up some books and educate yourself. I have a dream just like everyone else to be financially free and to live on a tropical beach every day but there is a question everyone should ask themselves everyday. “what did I do today to make that dream become a reality.” and you should always be doing something to make that dream come true

  9. Julia Rowling

    I’m still a newbie, but I’ve come way back down to earth over the last six months since I’ve been getting an education. Got excited about REI as my road to financial freedom and, while I still believe that this is the right course, I now understand that it’s going to be a much longer road than I’d originally anticipated! Fortunately, my husband is 100% supportive (in this as in everything!) and I know I simply could not do it without him… Thank you!

    • Kevin Perk

      Julia,

      Thank you! Sounds like you got sold a dream and then did some research. But you are sticking with it. You are on the right course and like you said it will just take a bit more effort and more time that you first anticipated.

      Good luck to you,

      Kevin

  10. Good article. I have been investing a quite a slow pace a basically part time, and holding a full time job (2 Sfh year round and 2 seasonal summer vacation rentals). kind of difficult to step out of your comfort zone with 2 kids college education and the need for daily expenses to be paid. I am very handy and do most repair/upgrades. Would really like to add a duplex or larger next, but with the lending market being so tight, tough to get the funding. Any ideas.

  11. William G.

    Kevin, I appreciate your article, it hit several nails on the head for me. A newbie, with those wild eyes of excitement, convinced its easy peasy investing in real estate, and with my architectural experience, I would have a huge leg up on my competition. But I had no idea how much I didn’t know about investing.
    I am still excited about doing my first deal under belt, (without making foolish errors), so I continuously study and listen to investors of experience, like yourself. Thanks

    • Kevin Perk

      William,

      Your experience will give you a leg up. I was a city planner prior to investing and that knowledge helped me. Use what you have and find a niche. As an architect perhaps you can look for properties where you can add value with the addition of a bedroom or some other sort of add on.

      Don’t be too worried about the errors, you will make them. Learn from them and move on. The key is taking the first step and getting that first deal. Do it. Learn from it. Then do another one.

      Thanks for the kind words. Good luck!

      Kevin

  12. Larry S.

    No one can enjoy every part of real estate investing or even know in advance what you will like or dislike. . You might want to make a like and dislike list. Example. After a few successful rental houses I found

    LIKE…..Plumbing, remodeling, fixing, electrical wiring, looking at potential houses, shopping home depot, cleaning windows, adding light fixtures, furnace work, cement repair, tree and bush removal, upgrading basements.

    DISLIKE….. Bookwork, painting, drywall, cleaning ovens, interfacing with tenants, climbing on high roofs, carpets, doing taxes, fixing appliances, installing doors,

    If you have to do too much of the dislikes you may give up real-estate or hire help. If you have a wife or partner that loves doing drywall and painting walls you will have a better chance of being successful. My wife is a superb accountant and loves to paint.

  13. Bo Wagner

    It’s interesting to chat with some of the people at the closing table, whether they are buying as owner-occupants or are rehabbing (on the buy side prior to rehab or on the sale side post-rehab). With all the HGTV shows and (as-noted) late-night ads, it seems like this is ‘so simple’. Well, take the earrings on a pig analogy–there are many ‘great deals’ that investors pass up as they can see (with their experience) how much work the project will require. Just be careful buying something that many others have passed on–find out WHY. Even seasoned investors get stuck with problem properties; for that matter, take all the lovely “Love it or List it” programs–how many times have they found a) rot b) wiring issues c) asbestos or d) ALL of the above? I know it makes for great TV drama, but if your entire livelihood is tied up with a piece of property, the results can be devastating! Great article!

  14. Andell Straker

    Thank you for taking the time to write such a great post. I am still on the curve myself, but thanks to the Bp community, I’ve learnt far more in a few short months than i would have going it on my own within the same time span. Again thank you for your contribution.

  15. Milan Blooms

    Hi Kevin,

    Thanks for sharing this blog.
    All five points are essential and I wish every beginner real estate investor read this post.
    The trouble is most seminars that are geared at selling books and courses, make it sound easy! It’s almost like no work involved, no money required, nothing……. Just buy our books or course and get started making money:) So far from the truth!
    Keep up the good work.

    Milan

  16. Chris Field

    To put it bluntly real estate is actually a pretty hard business.

    When I started in real estate a couple very wealthy veterans gave me two pieces of advice that I’ll pass on:

    1. Only work half a day, the first twelve or last twelve hours is your choice.

    2. Best get the first bankruptcy out of the way while your still young and can start over.

    Knock on wood I have not joined the BK club yet. But in our world it’s not really a big deal just make it back again.

  17. Brilliant points! It’s a fact that new investors often get swayed by the huge dollar bills, and tend to make hasty decisions. Just like any other business, real estate also requires a strong and meticulous plan. All the pros and cons should be weighed. But higher returns generally take time.

Leave A Reply

Pair a profile with your post!

Create a Free Account

Or,


Log In Here

css.php