As can be expected in real estate, I’m often approached by people who see me as a “real estate guy” (sounds better than “slumlord,” which cops love to call me—despite owning nothing in the slums). I’m often asked about how I did it, how I do it, what I’m going to do next, etc.
I’ve come to learn that while every so often someone will actually be interested in my story, the overwhelming amount of people really want to know how they can do it. They want to know the secret—the foolproof way to make lots of money. It’s interesting to hear about how a blue collar worker was able to get into real estate investing without a background in it.
Many people are curious about real estate investing. Some hear the late night infomercials. Some watch too much HGTV. Some know an old man who’s worth millions from buying rental properties. While the curiosity comes from many places, one thing is almost always certain—people want to know how they can do what I did. They seek the comfort that comes from hearing another share their story. Here are 7 valuable lessons I learned when I was starting out.
7 Life-Changing Lessons I Wish I’d Known as a Real Estate Newbie
1. You don’t need the perfect mentality—or the perfect deal.
Remember that school term paper you knew you needed to write but you kept putting off because you wanted to make sure you wrote something amazing and weren’t quite ready?
That paper never got written until the last minute.
Perfection leads to procrastination. Sometimes it’s better to just get it done than to present a flawless product. Sometimes trying to be perfect just ensures you’ll do nothing.
Real estate investing can be this way, too. I remember being embarrassed to tell others what I paid for a house, thinking they would judge me. I remember having no idea what a fair price for a house was, so I would just offer significantly under asking price because I mistakenly believed that meant I got a “good deal.” I remember not knowing what a “good” ROI was. I also remember holding out for two months and missing out on $3,000 in rent to get an extra $50 a month because I thought it made my investment appear stronger to others when I shared my numbers.
Pretty foolish in hindsight.
My pursuit of perfection, handled incorrectly, caused me to stand on the sidelines instead of playing because I wasn’t in Olympic shape yet. I didn’t understand that actually playing the game is what gets you in shape! Had I understood that on my first few deals—the real value is in learning, not earning—I would have shortened my learning curve considerably.
My point? You don’t need home runs to win games. Base hits win games. Walks, sacrifice flies, stolen bases, and bunts can win you games.
Heck, even a great at-bat where you don’t reach base but learn about the pitcher can help you for next time, right? Chasing after a deal and learning what motivates sellers, how to negotiate, how to improve the terms of your offer, and how to analyze deals more quickly can have significant impact on boosting your investment career, even if you don’t get the deal. The reality is, most of the value of your first deal is in what you learned, not what you earned.
Related: For Newbies: The Motivation You Need to Take Off the Training Wheels (& Start Down the Road to Investing Success!)
Focus on acquiring good, solid, cash flowing properties in good neighborhoods and school districts at below market value. If you round up enough of these, you’ll find yourself much wealthier, much sooner than you thought.
2. Don’t ever undervalue the importance of relationships.
When I was new, I was a little obnoxious jerk.
I was penny wise and pound foolish. I scrimped and saved on small costs at the expense of hurting the people who could bring me future deals. I actually asked my agent to give up part of her commission sometimes when she was already getting me a screaming deal (and had given up some of her commission to get me a better price). I cringe at these thoughts now. My word, was I ever stupid. I just didn’t know any better.
Here’s a fact many of you don’t know yet. People, not your own brilliance, are going to be what bring you the majority of your deals—especially when you’re new.
We all love to talk about strategy because it makes us feel in control of the whole thing. We control our own destiny through our hard work and ingenuity. I’ve been there, too. I thought that’s what it took. Know what I’ve learned? It’s 10 times easier when someone just calls me and says, “Hey David, looking to flip a house right now? I’ve got one you’ll like.”
Sometimes it’s really that easy.
If people like you, they will want to help you. If people know how they can help you, they will. Sure, you can hide in the basement for three months and develop a super-secret algorithm, develop it into a program, and unleash it upon the world to help you locate distressed properties, OR…
You can make people like you and make sure they know that you’re looking to buy good deals.
I, to my shame, did not focus enough on making people like me. I was selfish and short-sighted. God only knows how many deals I missed out on because people brought them to someone else. UGH!
Don’t be that way. Make it a priority to help others. Make sure they get paid. Make sure they get referrals. Make sure they are appreciated. If you do, more often than not, the deals will find you.
3. It’s probably less scary than you think.
This one’s big. Many people don’t get started because they don’t know what to expect. All they can think about is what they stand to lose. While it’s very important to measure risk (very, very important), one of the risks people fail to measure is what you stand to lose by not investing. In economics, we call this “opportunity cost,” and it’s real.
If you check out a previous post of mine on Money Source of America and BiggerPockets, you’ll see the first comment is by Money Source of Americas very own Michael Callaway. He agrees with this sentiment, stating, “A failure to enter the game is a much bigger risk.”
Truth is, you’ll never know everything. I’ll never know everything. I started this article speaking about all the things I didn’t know, all the things I still don’t know. Now, I know there is a bunch of stuff I still don’t know. Why do I have the confidence to keep investing?
Because I know there are very few problems I will come across that someone else hasn’t. I know that the internet makes it pretty darn easy to find info, and it won’t be too hard for me to find someone who has faced this riddle and solved it. I can usually just piggyback off their solution and save myself a lot of time. Shoot, there’s a very high probability I will find the solutions to my problems here on BP, either in the blog or on the forums.
It’s just much easier these days to find stuff.
Let go of thinking you need to know it all. You will find yourself learning at an exponential rate once you get some skin in the game and own a property. So find something small if you’re worried, run it by a few others you trust, and if it sounds good, buy it and rent it out. That’s how you’re going to learn. And you’ll realize this whole thing isn’t as scary as you’ve made it out to be in your mind.
4. Don’t trick yourself into thinking you’re an investor when you’re an analyzer.
This one is weird, but it’s true. So many people love to talk about the game and think that means they play it. They understand all those acronyms I mentioned earlier. They love to play on the calculators to estimate returns. They read all the articles, scour the internet, and know what the experts say. They are totally immersed in real estate.
But don’t own any.
Don’t be that guy. Make no bones about it, we do this to make money. You aren’t going to make money by talking about it, you’re going to make money by being about it. Don’t be fooled into thinking you’re making progress because you’re giving your opinion on the forums or you can recite Robert Kiyosaki verbatim. Knowledge gained without being put to use is useless and a waste of your time.
Real estate isn’t fantasy football. You don’t get points for watching others playing and winning.
5. Realize not knowing where the market’s going is OK.
This one is tough, I’ll admit. I myself spend a fair amount of time worrying about if I should be buying, selling, waiting, or spending. None of us really knows. It’s easy to see how this can cause a lot of people to hesitate. But let me tell you why it’s ridiculous to constantly use this as an excuse.
When I started buying in 2009, the market was at or near its bottom. When people look back, they often say, “I wish I had bought back then. I would have made a killing. It’s just too late now, prices have already risen.”
The problem with this is, back in 2009, everyone was saying the economy had collapsed and we were fools to buy! Why do you think everything was so cheap? Because no one was buying it, that’s why! It felt like a huge risk. Like things were going to get worse or possibly never recover. All the news was saying that America had been struck a death blow, and the great recession was coming.
So everyone clutched their money close and didn’t want to risk it.
Now, I’ll admit, a great recession might be coming again. Or it might not. I don’t know. You don’t know. Nobody knows. It might come and be followed by a huge comeback. It might not come at all, and prices might just creep up forever. None of us knows! So talking about how you would have done something before does you no good now.
Why do I have confidence to keep buying when the market is already “up”?
Because of cash flow. Cash flow is the great equalizer in real estate. If the market goes up, I can make a bunch of money and sell. If the market goes down, I don’t lose crap unless I sell. I don’t need to. I can just let the cash flow pay for my mortgage until the market turns around again. It’s an amazing hedge against bad markets. My renters are assuming a lot of my risk for me. That’s one of the reasons I buy real estate instead of other investments.
There is a reason real estate has done so well over long periods of time. Markets go up and markets go down, but if you have a tenant, you can ride it out. I don’t know what the market is going to do, but I know people are likely going to need a place to live.
6. You CAN overcome lack of sufficient reserves.
Honestly, this is the one reason I usually agree is a good reason not to get started. Having healthy reserves is crucial. When I first started, I was hesitant to buy until I had a significant amount of reserves built up. The problem was, I didn’t know what was healthy. I thought I needed to have enough saved up to pay for every single property for two years, with 100% vacancy. Pretty silly.
Looking back, I didn’t need that much—especially with lots of disposable income. However, if you’re not buying because you don’t have enough in reserves, that’s still no excuse.
What good reason can you have for not saving up enough money yet?
Real estate investing is still investing. It is putting your money to work for you and assuming some risk while doing so. If you’re trying to use RE as a vehicle to build wealth but you aren’t actually building wealth with what you already have, you’re not ready for this. RE is not a financial savior for you. In all practical terms, it does take money to make money. If you want to play in this space, you need to be saving money. Not having reserves is not an excuse. Start saving reserves today.
7. Finding a support system is very possible.
I think at one point, this was a legit concern. Today, however, it’s not.
We have sites as Money Source of America, BiggerPockets, the internet, REI meetings, books, blogs, articles, paid RE sites, free RE sites, and coaching. You want it? It’s out there.
I agree a support system is necessary, but if you’re reading this, you have access to one. I’m here, BP is here, tons of investors are available on the forums.
Not getting started because you don’t have a support system is just silly. Start reaching out and finding one. I wish I had.
If you are still unsure what to do to get the ball rolling, send me a message on here. I love to help, and I remember what it was like being new and feeling alone and scared.
If you know someone who feels alone and scared right now, please forward them this article. Sometimes it helps to know that you’re not the only one feeling that way.
If I had known about a site like Money Source of America when I was getting started, I honestly believe I would have twice as many properties right now. I know it’s hard to believe when you’re new, but real estate isn’t rocket science. You are likely much, much closer than you think to getting started and putting together a portfolio of income property to support you in retirement.
Your future you is dependent on present-day you to put things into action. What you do today matters.
Don’t be like me. Don’t let silly things hold you back from an epic future. There is an answer to whatever questions or objections you have. Go find them!