Posted by Jasonrei on September 06, 2003 at 11:42:05:
Ron, about the mistakes. I’ve only been an active investor (actually a retailer) for just under 2 yrs. Every couple of months I see tremendous improvement and yet I know I’m missing so much. I see mistakes every day. Good thing is we can learn from it and hopefully be able to say we’re only getting better. Good thing about real estate is you never reach the “top”.
advice for newbies - Posted by gerald(tx)
Posted by gerald(tx) on September 05, 2003 at 22:00:54:
A friend of mine is sadly leaving the real estate investing arena after only a year. Unfortunately, she’s leaving her money behind, also. She had $50k to invest. Her broker swayed her to buy 5 new homes at a small builder discount. She would rent or owner finance on a wrap, and years down the road this could provide her with a retirement income. Sounded like a pretty good plan on the surface.
When she called me, 2 houses were vacant, 2 more were having problem tenants evicted, only one property was performing. I also learned that one of her houses had sat vacant 9 mos before she found a tenant. She had already dug into her credit cards for almost $20k to make payments, they were maxxed out, now she was ready to just send the keys and deeds in lieu of foreclosure back so she could stop worrying herself silly.
A $70k loss in a year is unusual, even for a newbie. We can analyze her situation, and yes she made a lot of newbie mistakes, but there is another element involved – it’s called luck! Bad things can and do happen to even your well-screened “golden tenants” as well as unforeseen economic situations.
The point I want to make is that real estate involves risk! Don’t forget this. The biggest mistake a newbie can make, in my opinion, is to not have a reserve nest egg to fall back on when tough times come. Seminars tout the “no money down” aspect to sell tickets and courses, and yes you can buy without money down, but wisely you better have a cushion to fall back on if and when calamity strikes.
A second point is that RE investing is a learning process and would best be approached one property at a time. Buy one, sell it or lease it, learn, and repeat the process. The learning curve increases with each property.
This post is not to discourage newbies, but rather to encourage them to take precautions. The rewards in real estate can be tremendous – just be aware and never trivialize the risk factor.
Good points - Posted by B.L.Renfrow
Posted by B.L.Renfrow on September 06, 2003 at 14:13:11:
It can’t be said often enough in this business that very real risks do exist, and that bad (or unexpected) things can and will happen.
Knowing how to plan for these situations, in my opinion, is one of the foundations for success in real estate investing, creative or otherwise. It’s often said, and not without merit, that most courses and gurus either don’t mention this or breeze past it in favor of the “make fabulous riches” sentiments.
One thing which I think is especially tough for the new investor to understand is this: one presumably gets involved in REI for money, which is the bottom line. Sure, you can say you like to help people, you enjoy putting deals together, you like to solve problems – all of which may be true – but the bottom-line motivator is money.
So here’s a newbie, perhaps with no cash and no credit, not necessarily looking to be an overnight millioniare, but looking for a better and more comfortable existence and more freedom. He reads a few books and perhaps comes across this site, and thinks, “I could do this too.” And he learns all these ideas and techniques which he never knew existed, and perhaps starts doing a few deals. Now he’s making profits, just as the courses and books said! But wait. He sees posts like yours above from time to time, saying in essense, you can’t (or shouldn’t) spend the money you’ve earned. You should save it and build a reserve fund, or use it to do more deals.
Well, just a darn minute here! How is it I’m supposed to be able to quit my job (which most on here speak of in derogatory tones) or make a better life for myself or my family if I’m not supposed to use any of the money I’m earning for my usual expenses?
See the conundrum here? It took me years, and some very painful and expensive lessons to figure this out. Now, maybe I’m just denser than others, but I don’t think so.
Preaching caution, endless study, a conservative approach and cash reserves isn’t sexy and it doesn’t have the appeal of saying “anyone can do it.” But it’s absolutely vital to success in the business. Just ask me how I know that.
Brian (NY)
again, not to analyze… - Posted by gerald(tx)
Posted by gerald(tx) on September 06, 2003 at 14:05:09:
I could spend a lot of time going over all the mistakes she made, and yes the RE broker was thinking more of his own pockets than hers.
But above and beyond the mistakes, she was unfortunate to have an incredibly bad run of luck! This will happen at the most unexpected times. You can get by with a lot of mistakes IF you have money coming in each month and not all going out. With one property, it’s disturbing. But with several, it’s a nightmare.
And I should have said “acquaintence”, rather than friend. If I had known all this before it was too late, I would have certainly jumped in and helped her.
Re: advice for newbies - Posted by Jasonrei
Posted by Jasonrei on September 06, 2003 at 10:24:51:
One thing about real estate, when you make a mistake it can really pull you under. Rentals are tough.
Re: advice for newbies - Posted by Linda Simms
Posted by Linda Simms on September 06, 2003 at 09:19:43:
Unfortunately it sounds like your friend only listened to, I asume a Real Estate Broker. Evidently she did not check with you or frequent this site. This would indicate that she made the tragic mistake of jumping into real estate with out learning or studing first. Where was the “broker” when the houses were empty? There may be a way to come out on them yet. Ron Starr has a clasic post for beginers on this site and I am sure he will be glad to comment or help if asked. The biggest mistake in my opinion was going to a broker in the first place, who normally knows little or nothing about real estate investing. They only normally know about selling some one else’s houses to get their fee. That’s fine for them and they normally provide a good service to those owners, who don’t have the time or the inclination to do it on their own. But they normally are not investors and should not be relied upon for investor advice. It’s a common mistake. Whenever you tell the average peerson that you deal in real estate or that is your business, nine times out of ten they will say “Oh you are a Realtor”… She need some great advice by experienced investors on this site on how to recover. They will need detail of the houses and financing to do so.
Re: advice for newbies - Posted by roger
Posted by roger on September 05, 2003 at 23:53:41:
i’m a newbie too but it sounds like she jumped into r,e, with no trianing like the first time you try on roller skates and she fell hard,did this broker make a profit off her ,if i was her friend i.d tell her not to give up and to post her problems here on cre and to study all the r,e, course she can find, and search archive at top of here i,m in tx too garland sub of dallas ,give her all the incouragement you can and did she try l/o with $ 5000 or $6000 down to get some of her lost back there is people on here that have alot more experience than you or i .i wish her all the blessing the lord can give
Hmmm. I tend to disagree. - Posted by Ronald * Starr(in No CA)
Posted by Ronald * Starr(in No CA) on September 06, 2003 at 11:02:56:
JasonREI---------------
In this situation, what you say is certainly true.
However, in general, I see real estate investing as being a pretty foregiving investment. I feel it is possible to make a lot of mistakes and still come out ok, if not great. I know I have made a lot. I was not a very good businessperson when I started and am only mediocre now.
However, I also feel that one should know something about what they are doing. This this investor seemingly did not. I recommend studying and understanding before starting to invest. That is my recommendation in my post for beginners, which is found on this forum by putting “beginners success” in the archive search function. I also recommend there starting small and building up slowly, as did the other poster.
Good InvestingRon Starr******