Man, can I think of plenty of places there is just way “too much information” (TMI) floating around these days. Do I even have to mention seeing what people eat for breakfast every morning on social media? It’s not new news that we have absurd amounts of information floating around the internet, social media, and cell phones these days, but is it affecting real estate investors too?
When I got started in real estate investing (not even that long ago, in the big scheme of things), there was no BiggerPockets or any other go-to free resource. Well, I guess maybe there were smaller sites, but I learned everything by buying and reading actual hardcopy books. How old school, right?
It was just after I got my start in real estate investing that BiggerPockets really began making a presence on the web. Having been a blog writer for them since back in those days, I have seen firsthand the growth this website has experienced in the last few years. I don’t even necessarily think the growth is specific only to BiggerPockets, but it’s really representative of the amount of knowledge available to the public now in general—knowledge you used to have to actually buy books to find out.
No question, having so much information easily at your disposal (and free!) is a huge benefit and is opening up the real estate world to perfectly capable people who might not have otherwise gotten involved. But is it possible we are leaning towards having too much information available now? Is TMI starting to become an obstacle for investors?
I know this because as the amount of information available continues to grow, I am also starting to see more and more cases of “analysis paralysis.” Everyone know what that is? It’s when you get paralyzed in your analysis of potential deals and you don’t move forward with an investment because of it.
It used to be that analysis paralysis was really just that—being paralyzed by the numbers and running them and wondering if you were missing anything in the numbers and so on. Now what I’m seeing is that a large cause of analysis paralysis, if not the largest cause, is having so much information to sift through that it causes you to not know what to believe, who to believe, or what to do.
Makes sense to me—how would you know what to believe, who to believe, what to do, or even how to do it?
The Problem with TMI
I kind of just said what the problem with TMI is—with so much information out there, how can you know what you can believe or who to believe or what to do or not do?
That is basically the pickle I see investors getting into as they are taking in all of the information that is now available to them. But as someone who helps facilitate investment transactions and helps new investors through the buying process, I can see that there is more happening.
TMI is causing new investors to operate from a position of distrust rather than a position of pursuing educated due diligence.
What Does This Mean?
There is very little about a real estate investment that you can’t verify before you buy it. This verification is exactly what is done in the “due diligence period” on any real estate purchase (or should be done). This period of time is when you seek to verify everything you can on the property you are thinking of buying. It drives me absolutely crazy when I see people advertising estimated numbers for things like property tax, insurance, and mortgage rates. You can find out actual numbers for all of those! The only numbers that should be estimated are repairs, CapEx, and vacancy. Those can’t be determined for sure, so educated guesses on those (based on legitimate data) are acceptable. Rehabs are technically estimated, but they should be extremely well estimated, preferably off more than one quote and after a solid property inspector has gone over the property with a fine-toothed comb to know for sure everything wrong with it.
For things like markets and neighborhoods, there are plenty of things you can check into to verify the quality. You can verify the quality of the property through inspections.
The point is, the proper way to go into a potential property investment is to find something you like, something that looks good, and then make your primary focus to do the proper level of due diligence on that property to ensure everything is as advertised. If it is, you buy, and if it isn’t, cancel the contract.
That is how real estate investing is supposed to go.
Instead, what is happening now is new investors are starting from a place of distrust. I work with turnkey sellers, so I mostly speak for them, but I’m sure the same applies across the board—new investors are forcing sellers to prove they are trustworthy. Well, that sounds good in theory, but no amount of proof will be able to convince a distrustful person, and it makes the whole process hell for everyone when all that is required in the first place is just general due diligence.
Are you seeing the difference between the two buying process mindsets? It’s the difference between “innocent until proven guilty” and “guilty until proven innocent.” The former is what due diligence is for—you can assume a property to be legit unless your due diligence proves otherwise—and the latter will not actually help prove how trustworthy an investment property and will literally prevent a graceful journey through real estate as an investor.
How Distrust Can Affect an Investor’s Journey
Coming from a place of distrust will cause a new investor to feel the need to analyze and then over-analyze to a point where they won’t even be able to believe a neutral voice of reason. This causes a person’s sensibilities to get all screwy, to say the least, and causes them to not know which way is up.
How can anyone soundly invest in good real estate from that mindset? Even if you can finally pull yourself together to make a decision, your skepticisms run the risk of becoming a self-fulfilling prophecy—but even if they don’t, you’re miserable the whole time you own your investment property because you think some part of it is out to get you.
In the turnkey world, this level of skepticism and prodding to find moral violations in the sellers will also cause you to lose out on a perfectly good deal. The turnkey sellers I know and work with are impressively amenable to newer buyers and will answers questions thoroughly and make contract adjustments and other minor changes to make the new investor more comfortable.
However, if they get pushed too far or delayed too long, they will sell the property to someone else. They don’t have time for the drama, they aren’t interested in it, and they have plenty of experienced buyers who will purchase more quickly. It’s not that they have something they are trying to cover up (at least not the good turnkey providers); it’s that their business moves too fast to accommodate new investors who are unlikely to ever be satisfied on the trust front.
As fast-moving as turnkey providers can be, I’d argue they may be more amenable to the newbie interrogations than a lot of investment property sellers. A lot of sellers or flippers may be selling a property to an investor won’t think twice about telling you to take a walk if you even suggest an ounce of hassle.
So you risk losing deals, you risk never actually being able to bring yourself to do a deal, you risk irking people, and you will certainly stress yourself out. If all of that kind of prodding was the only way to confirm the legitimacy of an investment property, then that’s one thing, but it’s not. Again, due diligence is all that is necessary to prove anything. Due diligence is all about verifying the property, which is the only thing you are actually buying. You aren’t buying a stake in a person or a company; you are buying a property.
Knowing all of this is possible from TMI, how can you avoid it and stay in a positive mindset? No worries, I have you covered.
4 Easy Tips for Surviving TMI
So how do you counter the effects of TMI, and more importantly, how do you take the good from it (lots of free info) and weed out the problems it can cause?
Here are four easy tips to keep in mind as you swim through all of the information available to you.
1. Start out with—and keep—a positive attitude.
Real estate investing isn’t supposed to be hell. Trust me, it is stressful enough sometimes that you need to enjoy it to a significant enough degree to stick it out. Plus, where have cynical attitudes gotten anyone? Even if you buy a property, you’re still likely going to lose sleep over it wondering how you are going to get screwed. It’s not worth it, and it’s not necessary because nothing more than practical due diligence is needed to verify an investment opportunity!
2. Focus on due diligence, not interrogation.
Stick to the practical side of things in order to verify whether you should move forward with an investment or not. The numbers, the fundamentals, and the exit strategy are what matter. The person who sells you a property does not matter if you verify all of the pieces of the property. For more details on where to direct trust (or distrust), check out “Good News! You Don’t Have to Trust Anyone in the REI Business.” If you spend your entire due diligence period drilling the person behind the sale, you may be missing out on key information that the property itself can tell you—like whether the property is likely to succeed as an investment or not! If you aren’t sure how to do thorough due diligence, consult with someone who does! Make it part of your education process.
3. Listen to what you are being told and consider the source.
This sounds obvious, but gauge whether what someone is telling you makes sense or not and consider who is telling it to you. When you are brand new, you may not be able to tell right away, but the more you talk to people and the more you learn (education is key), things will start sorting themselves out in your head as to what sounds sensible and what doesn’t. If your gut hesitates on something someone says, go with that—at least until you have confirmation one way or another.
But if the information you get seems like it makes logical and helpful sense, go with it! And with the information you get, always consider the motivation for why someone is saying it and what experience they have. Be warned, many people talking on online forums are either newbies themselves, people who couldn’t make real estate work for them or never actually pursued it, or those who make money from transactional sales and don’t actually invest themselves. Also question whether someone actually has experience in whatever they are talking about because so many times I know for a fact that a lot of people voice opinions about situations they have absolutely no real knowledge of or background information on. But the details of the person aside, the most important thing is to weigh whether the information seems to make sense, is unbiased, and comes from some level of actual experience.
4. Don’t rule out real books.
There are two reasons to not rule out looking towards old school real books for your information. For one, the authors are much more likely to have a very solid clue of what they are talking about. There’s no questioning the expertise of some of the major authors out there. Secondly, you can also do something I did that proved to be extremely helpful in my career, which was to find an author whose career path I wanted and whose words I believed, and then I read as many of their books as I could find.
There as so many different facets of real estate and so many different ways to do all of them. Wouldn’t it be simpler to find someone who has been successful in the area you want to pursue and learn from them? You can certainly continue to gain more knowledge and information online, but I would say to make that your secondary source of education in addition to following the proven models. You can prevent reinventing the wheel that way, you can trust the information, and things can stay simpler.
Hopefully this is a good basic start to helping you sift through all of the million bits of information available to you. In no way do I want to discredit how much information is available, because it truly is opening the doors of real estate investing to more people than ever before, but be aware of the potential pitfalls of having so much information available to you.
Experienced investors—how did you learn what you learned to do? What were your key sources of education/information?
Let me know with a comment!