I have made a decision: one day soon I am going to commission a formal statistical survey to learn the following:
1. the percentage of all real estate investment advice dispensed that is actually drawn from real-world practical experience
2. the percentage of real estate investors who continue to follow the old dogmas, even despite market conditions
Regarding #1 above, I have no doubt that most of the advice given has no basis in reality. My bet would be that my survey would come back with evidence that an overwhelming percentage of investment advice is not based on any practical experience, but perhaps a few isolated incidents and a lot of hocus pocus.
In #2 above, my bet would be that at least half of all real estate investors are clinging to the old dogmas (standard, accepted ways of doing things) despite changing market and business conditions.
Let’s explore this further…
Do as I say (…not like I do?)
The old expression, “If I had a nickel at a time, I’d be the richest man in the world,” never rings stronger in my mind than when I hear real estate investors, both new and seasoned, begin a sentence with, “But so- and-so he said…”
While I’m glad whoever you talk to has taken some steps to arm themselves with knowledge, there’s always a point where you need to check what they’re telling you against common sense. For example, there is no shortage of market forecast wizards who claimed a “rebound in the real estate market” in 2008. 2008 came and went and then 2009 came and went and there hasn’t been much of a rebound in national home prices. households. The opposite has happened.
As an investor, this should be seen as an opportunity. It should also be seen as a prime example of why you shouldn’t take every market forecast from a media pundit or real estate guru as gospel. Plan your business around reality and plan your business around experience and listening to your mentors and advisers, while also listening to your “gut” instinct.
Out with the old and… in with the old?
There is tremendous vested interest in clinging to the old dogmas. After all, it’s hard to change. If you’ve made a lot of money over the years doing things one way, it’s very hard to change gears. A lot of this has to do with human nature. It’s okay to stick with a winning formula: if it ain’t broke, don’t fix it; however, this can come back to affect you in many ways. Especially since there are so many factors out of your control. Let me give you an example…
For many years I had a “buy and sell with lease option” model. It was simple: buy a house, renovate it, and then sell it on a rent-to-own program. Receive a great deposit/option fee up front, generate monthly cash flow, and then a great payday when the buying tenant trades in 2-3 years later.
This worked well for many years. What drove the final big gains, where most of the real money was made, was subprime mortgages and other homebuyer assistance programs (down payment assistance, etc.). As soon as subprime mortgages started to fade, the percentage of my rent-to-own homes that actually sold to the tenant buyer started to drop, a lot. Soon the withdrawal rate in my area went from 3 out of 4 to 1 out of 4 (if that’s a lot).
Because the lease-purchase option model had been in place for so long, it was difficult to change. Many real estate investors were stuck with properties that they couldn’t cash in on lease option buyers. These houses became long-term rental properties. Now, having a long-term rental is not a bad thing. Have the tenant pay the financing and put cash in the tenant’s pocket each month. However, the problem came to balance my business. You see, if the houses weren’t going to get paid on a reasonably predictable schedule, I needed to find alternate means of getting the bacon home.
It was difficult for me to make the transition. The paydays of the lease option cash withdrawals were huge. 30 or 40 big wins were common. However, I slowly realized between my eyes each day that if I didn’t make any changes, and quickly, I would be looking at a smaller pot of gold at the end of each month.
I changed my business. I went to wholesale and flip more and changed my target areas for long term holds. I turned to apartment buildings for opportunities to buy and hold as well. While this seems like it happened in the blink of an eye, it definitely wasn’t easy. It required a total restructuring of my thinking about the market, and it also required me to raise additional sums of private money (large sums in a short period of time). It took some work, that’s for sure. I am happy to have done it.
profit is what matters
A great way to stay profitable and grow your wealth is to do a quick common sense check on the advice you are receiving. It is practical? Does it make sense for your business? Does it make sense with the market right now?
Like it or not, investing in real estate is hip-jointed with market conditions: as prices rise and fall, rents rise and fall, government programs change and evolve, you must adjust your strategies for buying, sell and rent accordingly. . Sometimes you may want to do one thing, because you’re more familiar with a particular approach (for example, subject to purchases), but find that you won’t really make money from it.
2010 has the potential to be a big year for you, we’re 4 days into it now, so you better get going. As soon as you remove the old dogmas and look forward with a clear vision, you will leave other real estate investors behind.
