I received a phone call last week from a salesperson who calls me every few months. He called wanting to sell me advertising services. I kindly told them I still wasn’t really interested. He then said he had a friend who wanted to get started in real estate investing, and asked if I had any advice. We spent a few minutes discussing how I got started and some of the valuable lessons I had learned.
He’s not the first, and probably won’t be the last to ask me the same thing. I get queries like this on a regular basis. Often it’s from someone who took a seminar and now are trying their hands at real estate investing. With this in mind, I thought I’d start doing an occasional posts for the new real estate investor or anyone simply trying to improve their business.
What is real estate investing?
Real estate investing covers an extremely broad range of possibilities. In it’s most basic form, real estate investing involves purchasing property and receiving income from it. This can either be regular income such as rental properties or long term appreciation like owning land. Some of the greatest wealth in the United States is held by small mom and pop investors who own a small portfolio of rental homes and apartments that produce regular, monthly income.
Some view real estate investing similar to stock options where they never own the stock. They simply buy and sell options/contracts to buy stock. In the real estate world, this is called wholesaling. It is also what most real estate seminars advertising “no money down” or “buy real estate without any money” teach. In this model, wholesalers look for people willing to sell their property. They then sign a contract to purchase the property from the seller. Once this is done, the wholesaler goes about trying to find someone to buy their contract for a higher price. Often, the person selling the property has no idea that the person they are dealing with is nothing more than a middleman brokering a deal.
In our next post, we’ll discuss the various ways people make money in real estate.
Can real estate investing make you rich?
As mentioned already, some of the greatest wealth in America is hidden away in privately owned rental properties. Landlords who have purchased real estate are collecting rents that are either going directly into their bank accounts or paying their mortgage. After a number of years, the rents have paid for the rental property and the landlord either buys another rental property or uses the income to pay off other properties. Some landlords, even purchase rental properties with their 401K or their self directed IRAs creating additional wealth through advanced tax strategies.
Even though real estate can make you rich, it doesn’t always. Many so called investors drove the prices of real estate higher during the early 2000’s believing that real estate always appreciated, only to lose everything with the Recession. Wealth building is not a quick process. It’s a slow, steady race that over time builds wealth. In the next article in our series, we discuss Seven different ways to make money in real estate.
Results not typical
We’re all familiar with the phrase “results not typical”. We see it on every infomercial. But still, people pay big money to learn the secret to getting rich. Why? If you’re just getting started in real estate, I think it’s important that you give this some serious thought. We all have a tendency to let our ego get in the way and say “I’m different. I know better than to…”.
If you find yourself ever thinking these kind of statements – STOP, and ask yourself if you really are different, or have just believed the hype. Almost every stock market crash in history has been preceded by a common phrase – “It’s different this time”. Whether they’re talking about the DOT com stock market in the late 1990s, the housing boom of the 2000s or the Dutch Tulip Bulb bubble in the 1600s, the common phrase was – “It’s different this time”. Human nature is to think we are smarter than the other guy who got taken advantage of or to think it will never happen to me. In some ways, we are still adolescents who think “Nothing bad can happen to me”.
Is real estate investing worth it?
Having a fresh dose of reality, the next question is – Is it worth it? I believe the answer is yes, but as you can probably guess, it will take you time to build wealth. More importantly, it will probably involve you rethinking your personal spending. Most people think wealth comes through making more money. However, if you talk to anyone who has a net worth of more than one million dollars they’ll tell you that they didn’t make their money, they saved their money, over time.
When I first got started, I had very unrealistic expectations of building wealth quickly. Fortunately, someone told me to give it five years before giving up. Later, a very experienced investor told me to give it ten years. I’m going on 15 years of investing and I’m still not rich by any means. It’s taken me several years to learn to correctly analyze a property and determine if it was a good investment. It also takes many years to build a network of lenders, contractors, property managers and other resources that you can work with and trust.
Where to start with real estate investing
I’m a firm believer in education. However, I’m not a big fan of expensive seminars or bootcamps. Most of these infomercials start off with a free weekend seminar at a local hotel. They promise you will learn the secrets to making wealth in real estate. Once you arrive, you discover that the seminar is an all day long infomercial. Worse, the “secrets” are for sale at the back table for several thousand dollars. I’ve had people tell me that they have spent as much as $25,000 for the special training that they ultimately could have received much cheaper.
Real Estate Investment Clubs
If you want to get a good education in real estate investing, start by looking up your local National Real Estate Investor club. Most major cities have at least one investment club where you can hear various real estate people speak. Monthly meetings cost around twenty-five dollars to attend and you can pick which topics you with to go to hear.
Do your due diligence
Be aware that not every REIA club is the same. Most club owners are running their club to build their own network. They may even buy or sell properties to club members. However, every club will have its own share of hucksters, so do your due diligence.
I remember years ago being at a national real estate investing seminar taught by Jack Miller. Jack got up and started his presentation with, “We don’t endorse anyone here at the seminar. Do your own due diligence.”
I think that’s very good advice.
Be sure to read our next article in this series Seven different ways to make money in real estate