Monday, February 8, 2021

Why Most People Don't Get Rich In Real Estate

Initially, I intended this post to be a continuation of my prior post on how to get rich in real estate. I was going to address the barriers to entry that most people confront when attempting to begin a career in real estate and offer some suggestions on how to get around them. I am still going to address some of those barriers, but upon further reflection, I think that there is a common theme amongst most of the reasons why most people do not succeed in real estate when they wish to do so—motivation.

This may seem harsh, but please let me qualify my statement by saying that it is not easy to maintain consistent motivation. Having sufficient motivation to push through real estate losses, market downturns, bankruptcies or even years of unfruitful prospecting takes inner strength. During down times and after particularly difficult lessons in real estate, it can often feel like the experience was a sign to quit or move in a different direction. It takes true motivation, self-confidence and some self-delusion to look at a negative real estate experience, learn from the experience and continue on. This motivation is intrinsic and it only comes from a goal-driven approach to make it in a real estate. Quitting can never be an option. To that end, I want to share the following link to “The Strangest Secret” by Earl Nightingale, in the hopes that it is helpful to someone.

The Strangest Secret: Earl Nightingale

Having addressed the role of motivation, let’s take a look at the primary reasons for not succeeding in real estate and address them:

Not Enough Money, Credit, Funding

The financial barrier to entry into real estate deters most people trying to enter the market. I have written about this many times, but I have no problem reiterating that there are many ways to get started in real estate without using money or credit. I want to be clear, however—real estate investment is not the only way to make money in real estate. I definitely believe it to be the most lasting and transferable way to accumulate real estate wealth, but there are other ways to make money in real estate. Obtaining a real estate license or securing employment in as a real estate professional are both ways to begin a real estate career with little or no financial investment. A career as a loan officer, appraiser, attorney, property manger or any other real estate service professional will not only expose you to real estate markets and provide you with an invaluable real estate education, but can also lead to wealth through hard work. This wealth is bounded by the amount of hours that you can work and is not necessarily transferable, but it is feasible and requires a much smaller financial investment upfront. Moreover, the knowledge and experience gained in a real estate service career can lead to a transition to a more informed investment career.

Focusing on the real estate investment arena, there are a number of ways that you can begin with little or no money upfront. Birddogging and whole selling are both real estate investment methods that can require little to no money down. If your sphere of influence includes people with disposable income, creating a presentation and requesting investments from those that know, also takes a minimal financial investment. It may take an emotional investment to try to make such a presentation, but such experiences are part of growth. You can also save up over time, work on your credit place yourself in a position to invest in the future. Keep in mind the quote by Bill Gates: 

    “Most people overestimate what they can achieve in a year and underestimate what they can achieve in ten years.”

No matter what your financial position right now, you can become a viable real estate investor with a down payment through focus and determination. If ten years seems like a long time, plan to do it in five or three. The bottom line, however, is that three, five or ten years will pass even if you don't work to improve your financial situation, it only benefits you to make sure that you do so while this time is passing.

The Market Is Bad

Markets are cyclical and we inevitably find ourselves in a down market at some point. A down market, however, is never an excuse not to start your real estate career. Although down markets may affect real estate hiring and the availability of funding, there are opportunities to invest and enter the real estate service market during any market. A down market merely signals a shift in strategy. I have written previous posts about how to navigate a real estate downturn. Please feel free to scroll through this blog and read them. As reminder, however, the lack of funding that usually takes place during a down real estate market necessitates creative financing like seller financing, buy-leasebacks (commercial real estate only), private lenders and syndications. Landlords can avoid pitfalls during these downturns by keeping reserves during times and prosperity, being very meticulous at all times with vetting tenants and by searching for ways to improve expenses and management during the lean times.

I Don’t Have the Time

This reason is a very popular one. Many people feel that they have the desire to succeed in real estate, but lack the time. For this reason, I have one question:

What occupies your time?

We certainly make time for the things that we deem essential. Many times, however, the non-essential items can inadvertently sap our time and energy. To that end, its important to be acutely aware of things that slowly leech away your time like TV, Netflix, and mobile games. It is also very important to take the time to truly self assess and make sure that you are not prioritizing items falsely labeled as essential. Committing to success in real estate will require a serious level of candor during this time of reevaluation. 

Becoming successful in real estate also will require a change in lifestyle. It is also necessary to look at which time commitments you hold perpetuate your current situation. Every lifestyle consists of habits that perpetuate it. Keep in mind that changing some of these habits may even prove to be uncomfortable, as there is a certain level of comfort in predictability. Perpetuating success in real estate will require habits that create success. The habits may seem different, strange or even uncomfortable at first, but they will become second nature over time and will bring you toward your intended goal

I Can’t Find Deals

Finding investment opportunities is certainly a large concern for new investors. It can take some time to find the first set of deals, but consistency definitely yields results. In my experience, very soon after the first few deals come in, continued consistency leads you to a point where it feels like the floodgates have opened and soon the issue becomes that there are too many deals to be serviced. That said, below are a few ways that you can find your initial deals. This is by no means an exhaustive list:

  • Check the local MLS;
  • Post “We Buy Houses” signs (where permitted);
  • Check/mail to the filings of lis pendens for foreclosures;
  • Check/mail to divorce and probate filings;
  • Attend garage sales;
  • Contact for sale buy owner properties;
  • Market to owners of vacant or high-grass properties;
  • Check the listings for foreclosure sales;
  • Sign-up for/attend tax lien sales;
  • Call/contact owners advertising for tenants;
  • Attend/join local real estate investment associations;
  • Advertise online.

I am happy to explain these strategies in more detail in the comments, if you have any questions. I also want to mention that realtors and attorneys are restricted from undertaking some of the strategies.

Real Estate Is Not For Me

Now, this is the reason that I respect the most and my answer is very simple—“Don’t waste your time with real estate.” There are many ways to build wealth and real estate investment requires a certain level of passion and motivation, as described above. Real estate should be a path to and not a distraction from wealth generation. Realizing that real estate isn’t your arena is important step to finding your true area of interest. I encourage you to seek that arena and pursuit with your whole heart. 

In the words of Kevin Garnett, “Anything is possible!” Motivation is key. The best thing that a new or seasoned real estate investor can do is to find ways to kindle and feed that spark. Regularly revisit your "Why" and remind yourself of why you are seeking to succeed in real estate. Join a group of like-minded individuals and to continue to motivate one another. Read, attend classes, continue to learn and continue to improve.

Well, that is my take on the impediments to success in real estate. Please feel free to comment below.

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