In this article Ben cuts through the puff and fakery of the get rich in real estate crowd and reveals to beginning real estate investors about the 6 traps to avoid to begin real estate successfully.
Real estate investing is always presented in the best light. You know, "fast cash", "huge wealth" ... all that. And even though the sensible, mature part of us is urging caution, we can find ourselves at a real estate investing seminar breathlessly offering our credit card at the back of the room spending money we don't have to buy a course on how to make a million dollars in real estate.
Don't feel bad. These are marketers wielding finely honed weapons of influence. You are supposed to make a rash decision. That's how it's all been designed. The problems begin though when you continue making rash decisions outside the hotel ballroom.
You know, it's exciting making $20,000 on a deal, and it is relatively easy to make those profits once you know how. But to think it will be easy first starting out because some guru who has sold you a course tells you so ... is a TRAP!
Don't get me wrong, real estate IS an incredible opportunity to generate cash to make you completely debt free and then build substantial wealth, but all in good time. Right now, the pixie dust sprinkled during the seminar has made you a little confused.
Beginning real estate investors are given a lot of selective how-to advice, but little information about the traps to avoid. There are many, but here are the main six:
1) Quit your job: You may hate your job. You may despise your boss, but when it is providing the money you need to put food on the table and keep a roof over your head, your job is your best friend. Especially if you have been bitten by the real estate bug and are now addicted to buying real estate courses. Your job will support your habit.
2) First deal delusions: If you are tempted to quit your job your rationale for doing it probably has something to do with all the money you feel certain is going to be coming in soon. There is a softening effect real estate seminar pixie dust has on your powers of reasoning. Entertaining this delusion is merely the first sign. Don't fall into this TRAP! Your first deal will be the hardest deal you ever do, not the easiest. Let's face it, you don't know what's coming, you don't yet know how hard you have to try, you don't know the numbers involved, whether "no" really means 'no', whether private lenders really will hand over their cash for your deal, you don't know the nature of everyone in the business and how to deal with them. Most of all, you don't know whether it will pay off if you give it everything you have. Getting through all these unknowns make the first deal the hardest, indeed, it's what weeds out the 98% who try. How long it takes you depends on many things, it may take a month, it may take a year. In the meantime, keep your job.
3) Underestimating the effort required: In it's essence, putting together profitable deals is pretty simple, and it can be easy, after you know how. But on your first deal you don't have the benefit of experience, it's all new and you have to pay retail for every bit of progress you achieve. If you're still under the spell of the cool-aid you drank at the seminar the first thing you realize is that deals aren't just sitting somewhere waiting for you to pick them up, they must be detected and then created. Sellers shade the truth about their property, brokers give you pro-forma numbers and make access difficult, lenders want miles of paperwork, closing agents can be wonderfully self-involved and 'forget' to tell you important things. If you can be objective through all this (and not take it personally) you realize that no-one cares about making anything easy for you. In fact, everyone is looking to you to create value for them. The deal happens or falls apart to the extent that you cast yourself in the role of ring leader and take responsibility for making sure everything happens. It requires a lot of effort the first time through, and the "best you" has to show up.
4) Not using the tools you have: Not all real estate courses are hype. In fact, there are many high quality, authoritative courses available, usually through your local REIA, that give you the tools and guidance you need for success. When you buy a great course that passes along to you the tools and hard won lessons earned by the author, there is a tendency to slack off. This is a trap, and avoid it like the plague. You have done a lot of work and invested your hard-earned cash sorting through the dross to find some authoritative instruction. Capitalize on your good fortune and take action immediately. The tools of real estate investing are incredibly powerful. Direct response marketing for lead generation, positioning, developing lead-flow, negotiating, creating more demand for you than there is supply, understanding "next", are all tools and processes that will change your life and how other people see you. You need to get familiar with and master them your earliest opportunity.
5) Playing the skeptical victim: Real estate investing gurus like to showcase the elements of doing deals that make audiences gasp in shock. Things like buying with none of your own money, or selling the property before I even buy it! The thing about these sizzle points is they are all true. Only after you gain a little experience you realize doing these things is just the most effective way to do business. Yes, you may feel manipulated by marketing hype but it's a trap to think of yourself as a victim because of that. First, because if you allow cheap skepticism to protect you from "risk" you'll never learn how the business works. There IS unlimited money available to fund your deals. You CAN close on deals before you buy them, it's just how a simultaneous close works. You CAN buy a 100 unit apartment building without a dollar of your own money invested ... it's just the most effective way to buy income property. Second, if you see yourself as a victim you will never make it through your first deal. You must take full control of your efforts and try as hard as is required to put your first deal through. See yourself as the one at the center who is making everything happen. You are the difference-maker.
6) Not taking full responsibility for your success: Take careful note of the internal dialogue going on in your head. If there is any kind of self-pity, rationalization going on it's a sign you haven't yet taken complete responsibility. Another sign is that you are always looking for shortcuts. Sadly, there are no shortcuts in real estate. You may have previous business experience that speeds up your learning curve, but in the end you won't receive the money you are looking for until you create value for all the players in a real estate transaction. Learning the game, the rules, the strategy, the mindset, takes time. You'll know you have taken responsibility for your success in real estate when, a) you see your current job as an asset, not only to provide income but also as an opportunity for personal development. b) when you are thinking in terms of taking a full year to get thoroughly educated and put into practice everything you learn. You may buy a property before the year goes by, but there is no pressure. This is your learning phase. c) you start being a serious student. You focus on one type of real estate and cease being a connoisseur of real estate courses and seminars. You do as much as you can with what you have at any given time. i.e. try as hard as you can. 90% of "smart" is work. And be very selective with who you listen to. There is nothing quite as valuable as good information on a specialized subject. It gives a unique leverage. The opposite is also true.
Many of us jump unthinkingly into real estate investing through fear. Skillful marketers tell us that we must act now or the opportunity will be lost. Well, real estate will always be around, and no matter what market phase real estate is in there will always be the opportunity for a lot of money to be made.
We must be adult about it though and take our education and investing seriously. Keep your job and provide for you and your family's immediate financial needs first, then start your exciting journey into real estate wealth.
