You're about to discover the WORST Way to invest in real estate. Rather than focus on what to do, you'll going to learn what NOT to do. Oftentimes, bad real estate deals turn into fabulous learning lessons. For example, if you bought properties the traditional way in the mid 2000s, you may have discovered that real property doesn't always go up in value. But even better is when you don't have to go through the heartache and trouble yourself. Instead, by observing the mistakes of others, you can drew valuable lessons from others experiences with investing in real estate.
Before the worst way to invest is revealed, perhaps its helpful to point out why I am uniquely qualified to share this message. Three reasons. One, I am a full time real estate mentor, coach and trainer, having worked with thousands of real estate investors on thousands of deals. From videos, blog posts, podcasts and even my book, you can probably recognize that this ain't my first rodeo. Two, I field hundreds of questions from people with real estate problems weekly. I'm a huge magnet for helping people with their sticky real estate investing deals. Three, I buy real estate from distressed real estate owners. People who really want to get rid of their property usually have a story to tell. So when you combine all this, it becomes clear that I have been exposed to a TON of real world real estate situations. And oh, the stories I have heard.... I have been very fortunate to have been exposed to what works and what doesn't at a level most people will never have the opportunity to experience in an entire lifetime.
The WORST Way to invest in real estate is....
To Get Involved in Deals You Don't Fully Understand
Real estate is unlike many other common investments. For example, stocks. If you invest in stocks, what's the worst case scenario? You lose all your money, right? What is the worst case scenario with certain real estate deals? With real estate, not only can you lose all the money you put into the deal, but you can also sustain additional loses if you borrowed money and some of that borrowed money was lost. Plus, real estate is more hands on and requires more ongoing effort on your part. With stocks, once you buy it, your management role is done. Sure, you may want to keep tabs on the company to make sure you should hold on to the stock, but with real estate, you have to manage the property (or manage the property manager). So a bad real estate investment can cost you more than just your original investment. It can take up a ton of your time too.
NOTE: This training is not meant to scare you, but to better inform you how to invest in real estate wisely.
Getting Involved in a Deal
My definition of getting involved in a deal is when you put your own money or credit, or both, into a deal. If you creatively invest, and avoid putting cash or your credit into the deal, technically, if the deal goes sour, you have little downside risk (time being the only thing lost). For beginners (and even seasoned professionals), creative, low risk investing is a great way to avoid getting too involved in any one deal. Most people are not educated on how to creatively invest so they put their own money, their own credit, or both, on the line when they invest in real estate. And that is what it means "To Get Involved in Deals".
Deals You Don't Fully Understand
If you don't know the absolute worst case scenario, if you can't answer with certainty "What's the worse that can happen?", you don't fully understand a deal. The list of investors who have fallen victim to this, is long and distinguished. Developers who have strayed from their normal development projects in search of greener pastures or simply out of greed, have learned this lesson the hard way, some having lost their entire fortune, going from the penthouse straight to the poorhouse. Turn key property buyers who have purchased pre-rented, already managed rental properties half way across the country sometimes come to regret buying "already cashflowing" property. Landlords who are barely hanging on financially who get a bad tenant who lives for free for several months become fully aware of the worse case scenario. Rehab projects that end up half way done because a contractor walked out on them, or a building inspector required work be ripped down and done over, are a dime a dozen. Tax lien investors who discovered that getting the property back at tax deed sale was not all that it was cracked up to be and now they are stuck with a basically unsellable property that they now have to pay property taxes on. And that is just the beginning of such a list of situations where the investor didn't truly understand what the worst case scenario was when they got involved in the deal.
The Danger of Getting Lucky
Some investors jump in with both feet, get involved in deals that they don't fully understand, and they still manage to end up on top. Have you ever experienced that yourself or know someone who did? That's called "getting lucky". And it can be quite dangerous because it gives the investor a false sense of reality. Chances are, they will go bigger on the next deal and that's when things can come crashing down. Many investors in the mid 2000s ran into this situation. They may not have been aware that they were in the midst of the biggest real estate bubble in history. Like musical chairs, they dance around, buying properties then re-selling them for much more money, and real estate investing seemed almost too easy. Then, they re-invested their earnings and wham, the market collapsed and they not only lost their original investment, but their properties either went to foreclosure or short sale and may have created deficiency judgments. If you are one of those people, my heart goes out to you and I hope that it doesn't scar you for life because that is a great experience to grow from. There is a right way to invest in real estate too.
How to Invest in Real Estate the Right Way
Get involved in deals that you fully understand. That requires education. Or, don't get fully involved in deals by avoiding using your own cash or credit, even if you don't fully understand the deal. That requires education too. No matter how you slice it, if you truly want to succeed as a real estate investor, you have to educate yourself. For those who have absolutely no desire to learn anything new, you can still invest in real estate by buying shares of a publicly traded Real Estate Investment Trust (REIT), but don't expect gigantic returns either. If you've read this far though, you probably don't fit into that category because obviously you want to educate yourself. And the best way to learn anything is with a mentor. You can't learn to ride a bike by reading the manual. The short cut to truly educating yourself in real estate investing is to work with a mentor, or team of mentors. To learn more about how you may qualify to work with my team, apply to be my next apprentice.
And I have a small favor to ask you as well. Could you share with me any examples of real estate deals that have gone really bad? We can all gain from hearing the war stories, the horror stories, the how NOT to invest in real estate.