Should you follow old school real estate investing techniques and ignore new school strategies? Or vice versa? Which one is right? How do you separate the signal (truth) from the noise (fiction)? This video provides clear and concise insight on this topic.
Outdated Old School Techniques:
1. Owning Properties Debt-free
A classic old school strategy for investors is the goal of owning your properties debt-free. There was a time when owning properties free and clear made sense, but now that strategy is financially irresponsible. This old school technique worked when we had a monetary system that was based on the gold standard; when the Federal Reserve couldn't create money out of thin air causing inflation rates to climb. But those days are over and we do have soaring inflation rates.
If you borrowed money at 3% or even 5% on a 30-year fixed rate mortgage for your rental property and inflation went up by 7.5%, it would be a mistake to own it free and clear. With low interest rates on your investment property fixed for 30 years, it’s financially irresponsible to use this old school technique. In the past you couldn’t get a 30-year fixed rate loan on investment properties with interest rates as low as 5% or 6%. If you look at the history of interest rates, that’s low for investment property. So, don’t own your rental properties debt-free. That is an outdated old school technique.
2. Focusing on One Niche
Focusing on one niche is another old school technique that will put you behind the eight ball. Concentrating on just probates, or just pre-foreclosures, or just foreclosures is not going to get you anywhere in today's marketplace because there's too much competition. In the past, only a few people knew all the angles in real estate investing, but things are different now. With the internet, information on our business has spread everywhere. As a result, you can't be a one trick pony. You need to be able to pull out every tool in the tool belt so that you make money based on the best technique for each deal.
At Freedom Mentor, we teach any technique that makes money. And yes, I understand the phrase riches in niches, but the niche for creative real estate investors is not the niche of wholesaling, or probate, or foreclosures. Instead, it is working directly with off-market sellers. The niche you need to focus on is off-market deals.
Another example of to narrow a focus would be only making an offer to a seller that's 65 cents on the dollar, only paying cash for it, fixing it up and then reselling it. You niche yourself that way and you're only going to get one or two deals a year. These old school formulas used to work in the '70s and '80s, but they don't really apply now. You need to be more flexible and use different techniques so that you can make money on every single opportunity that comes your way.
3. It’s Who You Know
Another old school maxim that is completely bogus is, "It's not what you know, it's who you know." This saying does not apply to creative real estate investing. It's not who you know in our world, it is absolutely what you know.
Now there are certain niches within real estate where referrals could play a role. An example would be if you have a good relationship with commercial real estate brokers in your region, and you're sitting on millions of dollars looking to buy commercial property. That connection might be useful because commercial real estate still operates a little on the good old boy system.
However, in residential real estate it’s about knowing how to find great deals because you're not getting a lot of referrals or pocket listings from agents. You need to know how to use technology and other techniques to get to sellers before your competition does. And that's all about what you know, not who you know.
You Don’t Need Connections: This is encouraging for people looking to get into creative real estate investing. I'm not a networker and neither are any of my apprentices. If you never go to a local real estate investor club meeting, you're not missing anything if you're getting solid information on what techniques to use. And I know that surprises a lot of people, but that's the signal. It doesn’t matter who you know. What you know does matter because it can get you around those who have the whole market to themselves. If you know what you're doing, you can just sidestep them and dominate your market. They'll be surprised, but that's the new school technique.
Pitfalls of New School Strategies:
1. Dependence on Technology
New schoolers are dependent on technology and therefore have removed the personal element of real estate investing. An example of this is with automating follow up. I have a video called Magic Bullet to More Deals in which I argue that there is fortune in the follow-up. However, in many cases, beginner investors use the latest technology tools to automate their follow-up, only to discover that it is not as effective as manual follow up. The reason for this is the sellers you are trying to reach are keenly sensitive to who cares about their situation. They're not going to trust automated sounding messages. Manual follow-up is personal, it makes a direct connection, and builds rapport. You need to be personal.
You may argue that manual follow-up takes too much time. However, even those of you who are marketing heavily are not generating even one lead a day. And if you are generating quite a few like some of our graduates and top apprentices, you can hire an assistant to manually leave that custom voicemail or text. It makes sense to want to use technology to get more done. The problem is by automating follow-up they're getting less done because manual follow up is the key to more deals.
2. Virtual Offers
Another ineffective new school technique is making offers with sellers over the phone or online. All the studies show that sellers prefer in person offers. Yes, it is less efficient, but now more than ever it's incredibly effective. Going old school with presenting offers is going to put more deals in your hopper because everyone else is phone and online and sellers are still sellers; they will be more persuaded when you build credibility and trust in person.
There was a time when we could get away with phone or online offers because we had the market to ourselves. But now we need to take it to the next level to beat our competition. And this is one of the key moves that is making a significant impact. It is an old school technique, but it works.
3. Flaunting Success
Another new school strategy or behavior that is incredibly ineffective is flaunting your success online. As an investor you are working with sellers and their greatest fear is that you will take advantage of them. So, if you're on your social media talking about how much money you made and showing off how big and bad you are, that's a big mistake. Sellers are going to find that and decide they don’t necessarily need to help you build your empire at their expense.
Instead, take a different approach and be excited about helping sellers. Post videos of you working with a seller and how that was a rewarding experience for them. That’s not flaunting your success, that's celebrating the way you're helping customers. I'm not promoting a boycott of social media, just be careful about flaunting your success. If you really want to be successful as a creative real estate investor working directly with sellers, you need to be strategic about what you post online.
New vs Old School Real Estate Investing:
I posted a video in 2013 called Real Estate Truth vs Fiction that is more relevant today than ever. In this information age, it’s commonplace to get a lot of bad information, so as real estate investors we need to make sure we separate the signal from all the noise. There are old school techniques that work just as well today as they did decades ago. And there are techniques that newcomers have pioneered that need to be taken seriously because some of them are highly effective. Real estate investors today need to embrace successful innovative technology and strategies, while not letting go of timeless techniques that will always work.