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Today’s guest post comes from the spouse of a physician, Rachel Hernandez of Adventures in Mobile Homes. As you might guess, her trailer park adventures come not from living in mobile homes, but as an experienced real estate investor.
The focus today is on single-family homes or small multi-family homes. Certainly, that’s one way to earn good income from real estate, but the endeavor requires hands-on management or excellent hired-out property management, both of which can be challenging to do well. Of course, you can also own REITs and invest in residential and commercial real estate via crowdfunders and other syndicated deals, as I have done.
While I have no interest in managing individual properties, tenants, and contractors, I do like the diversification that comes from real estate investing.
The Reality of Real Estate Investing: It’s Not as Easy as It Seems
When my husband picked up the book, Rich Dad, Poor Dad by Robert Kiyosaki, as a medical student little did I know about real estate investing back then. To him, the concept of passive income through buying and holding properties seemed attractive. It was simple. You buy a home. Fix it up. Fill it. And then, voilå. You start collecting payments.
Little did we know what we were getting ourselves into. Real estate investing isn’t easy. Sure, it’s simple. But it’s more involved. And I’m here to tell you what i’ve learned with over a decade of experience as a real estate investor. These are the realities of real estate investing:
Finding A Deal Isn’t Easy
When you buy a piece of real estate you want a deal, right? After all, we learned from reading Kiyosaki’s books that “you make money when you buy.” So you just need to find a deal. But the right kind of deal. Easy, right?
Most real estate investing books start with finding the deal and negotiating it. But what about the steps taken to get there? Before the deal was found. What did the author do to find the deal? How much time and money was spent? And most importantly, how long did it take?
These are items not mentioned in most real estate investing books and courses. Why? Because it takes time. And work. People selling you books and courses don’t want to make real estate investing seem too hard. They want it to sound easy. Why? Because they are selling you the dream.
The truth is that finding a deal isn’t easy. It takes time, money, effort and work to find just the right deal. And the kicker? Most deals are not found: They are made. Through negotiating. Yet another detail many real estate investing gurus leave out.
So if you have no training or do not know how to negotiate, you will stumble around. Which is what happens to most real estate investors. They become mediocre. And never truly master a specific niche.
The key to being a successful real estate investor is to do things that work with your personality. But in order to do this, you must first get experience. Learning about what works and what does not work for you can only be achieved by taking action.
Personally, it took me almost a year to find my first mobile home deal. It took a lot of hard work and effort to find, negotiate, and put together. Imagine if I quit before the year was up? Then what? Real estate investing isn’t easy. Though possible, it takes time and effort to achieve success as a real estate investor.
Property Managers Don’t Always Have Your Best Interest In Mind
Once you’ve found a deal, all you have to do is fix it up and put someone in it. Right?
To make life easier, you can pay someone, like a property manager, to do it all for you. One less thing for you to think about. One less hassle to deal with. Sounds easy, right? It’s not.
Good property managers are hard to find. Many do not always have your best interest in mind. Property managers are there to manage properties. They have problems to solve. Tenants to handle. Quick and fast.
It’s a volume business. You’re not their only account. They have multiple units to manage on a daily basis. It’s a lot of work (not to mention stress) for one person. Usually, your best interest isn’t always in mind. Theirs is.
Property managers are there to solve problems…right away. Even if it means at your expense.
Most property managers (the good ones) have a team of subcontractors they work with on a regular basis. They show up when called, fix the problem, and get paid.
Though, what you pay for in speed may cost you more money in the long run. To protect yourself, only let your property manager authorize a certain amount when it comes to expenses. If the expense costs more than the set amount, they need to talk to you.
For example, say you only authorize the property manager to spend up to $300 for a certain expense. Anything above that figure needs to be approved by you.
But what happens when an item needs to be fixed and costs more than what you can afford? Do you have a contractor in mind who can do the work within your budget? As a real estate investor, you should not only rely on your property manager’s contacts. Take the time to build your own team of contractors so you have options when an unexpected expense comes up.
Good Contractors Are Hard To Find
As a high-income professional, you may not have the time to do the work yourself on all of your properties. So why not hire contractors to do the work? Seems simple enough, right? The hard part isn’t finding contractors: it’s finding the right contractors. Those who will show up, do the work on time, and charge you a fair price. That is where the challenge lies. And I’ll tell you the truth, it’s easier said than done.
In order to find good contractors, you have to take the time to interview and screen properly. Don’t just go with a referral. The person may not work well with your personality and vice versa. Instead, make up a list of questions to ask over the phone. Pick the three contractors you like the most for each problem area. Then take the time to meet them. Go over the work needed. And get an estimate.
A note about estimates: They should be free. Most of the time. Unless it’s for electrical or plumbing work, both very busy professions, you should be able to get free estimates. Even now with over a decade of experience, I get free estimates for both electrical and plumbing work from the contractors I use. Though, it will depend on your ability to build relationships and trust over a period of time.
Once you find a few good contractors to work with, always be on the lookout for new ones. Take the time to constantly ask other property managers and real estate investors in the area who they use for their fix-up needs. Don’t rely only on the contractors you use. Things come up. There are times when they may not be able to get to your project. Or they may not be in business anymore for whatever reason. It happens.
By having a good amount of contractors lined up, you’ll save yourself time and money in the future. When an issue comes up with a property needing fix-up work, you’ll be glad you took the time to regularly interview contractors. And you won’t be left without any options.
Real Estate Agents and Investors Can Waste Your Time
Since you’re a busy professional, you don’t have the time to go out and look for deals. So why not just hire a real estate agent or work with another investor to find deals for you? Seems simple enough. Or is it really?
The truth of the matter is most real estate agents and investors will waste your time. Their interest isn’t in you. It’s in themselves. I’m sorry, but that’s reality.
If these real estate agents and investors find a deal, do you really think they’re going to bring it to you? A new investor? Most likely they are not. They’d either do the deal themselves. Or bring it to someone with the experience and track record who can close quickly. Hiring another investor to find deals for you is very rare. I was one of them back when I started finding properties for other investors. My service was in great demand. But I kept the best deals for my repeat buyers.
Now I’m not saying all real estate agents and investors are like this but the reality of them are. Don’t let people waste your time. Take the time to know your market and form your own set of buying criteria. Don’t go into a deal because someone says it is. Go into a deal because it works for you. Be careful who you choose to work with. Make sure they have a track record and know what they’re doing. Otherwise, you’ll be wasting a lot of time. And time is money.
Screening Tenants Isn’t Easy
Finding good tenants to fill your properties isn’t easy. The process is simple. But there’s more than meets the eye when it comes to choosing the right people to work with.
If you’ve left the job up to a property manager, be prepared. Most managers will look at the objective which consists of how a prospective tenant looks on paper. But there is also the subjective which is harder to see.
Will this tenant be low maintenance or high maintenance? Will they take care of the property? Will they call regularly asking to fix things? To put it bluntly, will they make your life (and your property manager’s) a living nightmare?
You can only find this out by taking the time to talk and meet with prospective tenants regularly. Over a period of time. There are certain mannerisms people have both over the phone and in person which are clues to how a person will treat you and your property in the future. Though, mastering this skill takes time. And most property managers simply have too many units to manage to take the time needed to learn this skill. Usually, as long as they look good on paper, they are good to go.
Only you can learn this skill by doing it yourself. Or asking questions to your property manager. Before you decide on an applicant. Usually, property managers have to present applicants to you leaving you to have the final say on whether someone is approved or not. Don’t make hasty decisions. Take the time to screen properly. Get your questions answered.
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The Work Does Not Stop After You Fill A Property
So you’ve filled a property with a good tenant. Now you can go out and celebrate, hooray! Or can you?
Hopefully, you put the right tenant in the property. But after you’ve filled a property, your work has just begun. This is not the end point. You must constantly monitor the property. Make sure it is being kept in good condition. Ensure payments are made on time. If there are items needing to be fixed up, you’ll need to have contractors on hand and make arrangements to get the work done in a timely fashion.
If you’re working with a property manager, you must manage the manager. Just because someone else is managing your property for you does not mean you can be completely out of the picture. Remember, the property manager does not always have your best interest in mind. Their job is to fix problems…quickly. Even if it means time and money to you.
Be sure you’re constantly monitoring your property manager and the work they do. Ask questions. Go over reports they send you. Question any items that look over budget or over the top. Having a property manager means someone else is doing the day-to-day management of your property. But you must still be involved. The person with the most interest in your property is you. And only you.
Real Estate Courses And Gurus Are There To Motivate You
So you’ve read a lot of books on real estate investing. Now you’re ready to get started. You want to do your first couple of deals quickly. You stumble upon a great real estate investing course you think can help. The person selling the course has a great success story. Their system seems solid. And they promise you’ll get the support you need. You’ll be doing your first deal in no time. Sound too good to be true? Well, it probably is.
Honestly, real estate courses and gurus are there to motivate you. But nothing is going to happen until you take action. You may think you need the information in their course to help with your first couple of deals. Most real estate investors think that especially when it comes to paperwork. You want those forms in that course. You want to learn the necessary steps to be successful. There’s a secret in that course. And you think it’ll help you get where you want to be.
The guru tells you his story of what worked for him. But you need to take in the information with a grain of salt. Do you think you can really do the things that he did based on your personality and time constraints? If not, hold off.
The better thing to do is read books and network with other real estate investors. Take action. Real estate gurus and courses are only there to motivate you. But you will learn what works and what does not work simply by taking action. I know it’s scary. I’ve been there myself. But once you start taking action, you’ll feel less scared every day. By learning from your experiences. Which will eventually make you a successful real estate investor.
Real Estate Investing Isn’t Completely Passive
No matter what you read in books or courses, real estate investing isn’t completely passive. Think you can just sit back, buy a property and fill it collecting rent every month and do nothing? I’m sorry but that isn’t going to happen. In order to run a successful real estate investment business, you must constantly manage it. And that means always being on the lookout for new members of your team.
It also means properly managing existing members of your team. You can’t just sit back and relax expecting your business to be successful. It takes constant work.
Learn to question what your team members tell you. Why is a particular item a certain amount to fix? Why are the tenants complaining? Remember, this is your business. You need to know what is going on. At all times. No matter how bad it hurts. Don’t be ignorant. The person with the most interest in your business isn’t your team members. It’s you. And only you.
Conclusion
As you can see, real estate investing isn’t easy. Sure, it can be simple. But when you put it into action, it can be a difficult road to follow. The path to success takes time and perseverance. And It must be monitored constantly.
Many people wanting to go into real estate investing fall in love with the dream. Which is usually sold by real estate gurus and their courses. They want to collect passive income without doing anything. They want to do deals quickly…overnight. They want to fill properties fast. And move on.
But that is not how things work. It is not the world we live in. Things happen. Life happens. And as an experienced real estate investor with over a decade of experience, I’m here to say that you must be prepared for the worst.
Real estate investing can be very profitable and rewarding. But you must constantly manage it. You have the most interest in your business. If done properly, you’ll be successful. If not managed right, it could be a living nightmare. And a reason why many people leave real estate investing altogether.
Rachel Hernandez is the author of Adventures in Mobile Homes: How I Got Started in Mobile Home Investing and How You Can Too! and the Real Estate Investing Sucks series of books. Find her at Adventures in Mobile Homes and on Twitter @mobilehomegurl
What has been your experience with real estate investing? What tips do you have to share? What’s your preferred method of real estate investing?
19 thoughts on “The Reality of Real Estate Investing: It’s Not as Easy as It Seems”
Thank you for sincere and heartfelt opinion. Success is not so easy to achieve as it seems. One has to be persistence and should work hard to attain a promising result. If one really wants to attain success as a real estate investor one should work actively. All the points discussed by you are worth consideration.
I have been a real estate investor since 2005 and it has been my ticket to tax advantaged retirement income. Is it work? Sure, but, so is anything worthwhile (like medicine). I don’t do any property management and knew going in I didn’t want to or had the time or talent for doing. It slightly decreases your ROI but well worth it for me. Do you have to manage the managers? Sure but it’s better than doing the management yourself and allows me to go away when I want and not worry about the properties. I also am not dependent on the stock market for my retirement income but still have some stock market investments. Multiple streams of income are important to me. I have also put together 3 syndicates for other docs to invest with me and it is rewarding to be able to help them get some real estate exposure in their portfolios.
Hi Rachel,
Thank you for the honesty. I’m currently on the knowledge/learning aspect of real estate investing. I’m not willing to jump into it until I am better prepared. Do you have any book recommendations on how to find a deal? I understand most deals are negotiated and probably location dependent, but any resource you found helpful would be beneficial. Thank you.
Great to hear SS! Regarding finding a real estate deal, it’s different for everyone. A “deal” for someone may not be a “deal” for someone else. Most times, I tell people to focus on learning a niche.
If you can learn a niche and find an area/market to buy in, you’re one step ahead of the game. Most real estate investors just look for “deals” or “motivated sellers” but don’t take the time to learn the market and/or the type of niche they’re buying. So when these leads come in, they have no idea what to do with them.
Regarding picking a niche, most real estate investors start out with single-family homes. It’s a good start but not the only choice. This is where my real estate investing journey began. Then I got into mobile homes.
I’ve met others who have started in other areas of real estate. Those who have been successful have taken the time to find their niche, study it and get better. This is what I’ve done through mobile home investing. In the end, you become an expert in your area.
If you’re interested in learning more, I wrote a book on the subject of finding your niche as a real estate investor and being successful called Real Estate Investing Sucks: How to Find Your Niche and Dominate. Hope that helps.
Feel free to let me know if you have any other questions. Good luck!
SS: You might want to consider “The ABCs of Real Estate Investing” by Ken McElroy. It’s easy to find on Amazon. It’s a good overview and and easy read. Education before you jump in is important but don’t get “paralysis of analysis”. Everyone makes mistakes. I know I have but as long as they’re not fatal, learn and move on and don’t make to same one twice.
WCI thank you for the detailed comment on the conflict of interest. I’m intrigued by this opportunity and understand that there is some reputational risk by recommending it.
I am seeing quite a few negative reviews from people who have used direct lending partners. I’m sure you, PoF, and PIMD have done your due diligence evaluating this opportunity from an investment perspective. I’m curious if negative feedback by those who are attempting to obtain the loans has given you any pause.
If people trying to obtain loans from them are unhappy, I’d see that as a good sign. To be successful, they have to turn down a lot of people.
I did see some negative reviews of their real estate agency, but that’s got very little to do with this investment.
I hope that helps.
-PoF
We have 3 units and I’m downsizing to just one soon. We need to simplify our lives at this stage. A property manager would help, but I never had one that I really like. They’re always too busy to take good care of your properties. Now, I need to spend more time out of town and my wife doesn’t want to deal with being a landlord. It’s not easy, but real estate is a proven way to build wealth. If you can handle it, it’s awesome.
Rachel,
Thank you for your honest and transparent perspective on real estate investing. It is clearly more complex than any traditional investing we do.
I think finding the sweet spot between the benefits of real estate and level of management is the key to being happy with this asset class. It seems that you get the full tax benefits of the investment if you actively manage and directly own but also inherit all the headaches.
At this stage, I am looking to incorporate real estate into my portfolio. Since i’m not interested in active management, I will have to vet syndications and private funds for their merit. The illiquidity vs opportunity cost is something I am reconciling in my investing ethos.
Is anyone else seeing the minimum for the fund still at $50k?
Interesting post and opportunity to explore. Curious about the conflict of interest process that the WCI Network went through in putting this “hot” Cityvest Syndicated Real Estate Investment Tip out at “The Physician’s Lounge Internet Water Cooler” after decrying taking such very tips?
I don’t know that there is anything “hot” about this tip, but it does feel that way a bit because the investment by its very nature is both time-limited and limited to just 100 investors. But there are other debt funds and there will be future funds offered by CityVest. I passed on the last CityVest offering mostly because the timing wasn’t right for me but I also didn’t like the fund all that much.
For sure there is a MONSTROUS conflict of interest here as well. Like PoF, I get paid if you invest in this fund after going through the links on my site. (I also, as a minority owner of PoF, get paid if you invest through the links on this site.) As a probable investor in this particular fund, it also benefits me to have the fund be as large as possible because it reduces my share of the fees. Obviously, since we get paid if you invest, our opinion that this is a worthwhile investment is incredibly suspect and cannot be trusted like the opinion of someone with a fiduciary duty to you.
That said, PoF, like WCI, is a for-profit business. Affiliate marketing is one of the ways that bloggers make money. Since none of us are willing to work for free, you should expect to see ads and affiliate deals from time to time. Most readers will not invest. Most readers will not click on the ads. But enough of them will that it makes the hassles required to continually generate content worthwhile. Plus that income allows us to do some good things like support charities (Leif gives 50% of his PoF profits to charity) and I have started a scholarship program.
As I noted on the podcast, this investment, like all real estate investments really, is completely optional. You can ignore it completely and still be financially successful.
The “conflict of interest process” was a simple conversation about the reputational risks to the businesses if this turns out to be a lousy investment or if CityVest goes under in a year or two. And of course a decision that we would fully disclose the conflict of interest (which I believe we have done).
Hope that answers your question. If you’re interested in my other conflicts of interest, you can find them here:
https://www.whitecoatinvestor.com/state-of-the-blog-2019/
Those of PoF are similar.
Thanks for addressing the question directly Jim. I truly respect your transparency, integrity, and everything that you do at the WCI Network. I guess I am a little curious if you will someday make a leap into the Financial Services Industry as you wish to see it a la Bill Bernstein…
BTW I loved the forward you wrote for TPP’s new book. It read like more of a manifesto really.
Thanks for your kind words. Probably not going to become a financial advisor. I’m actually more likely to sell WCI and just go back to doctoring (with lots more skiing on the side).
Great post with many practical takeaways. Thanks!
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Wow! Negative stuff right there! Let me ask: how was getting into med-school, your MBA, becoming a parent, getting laid off from an employer…or anything else in life that comes up.
Guess what? Life is simple and people make it hard. Life is dynamic and there are unexpected things that come up which is called life’s journey. I have been in real estate for 20 years and it is an amazing industry and opportunity.
Real Estate is a business, so apply yourself in a business like manner and you will be well off.
Like most of us here i’ve thought about getting into real estate a dozen times. Even thought about sound it with my brother. Me the money him the managing.
Whenever I get excited about it I like to read one of these “reality check” posts to remind me how much I actually don’t want to do the work necessary to be successful in this arena.
Maybe one day when I have more time. For now I’ll stick with the Simple Path.
This is a much needed post to open the ideas of the wannabe real estate investor.
Through the years I have found out that I am just not cut out for being a landlord. I have owned two condos (which I “lost” in the divorce (in reality I negotiated them being offloaded to my ex because although they had some equity in it, they had a lot of things like active management I could not wait to get rid of (my ex just looked at the bottom line value and was happy to accept it)).
Now I am still an accidental landlord courtesy of the guest home my ex built on my property and I received in the divorce settlement since I was granted the marital home. In the beginning it was a large pain to manage because there were all sorts of issues that cropped up and cost money (now it goes relatively smoothly with occasional large expenses cropping up).
I still wanted to get into real estate because of diversification and tax break and found a great compromise with more passive forms of investing (syndications and prior to that crowdfunding). Yes I get a cut of the profits taken out by the middle man but for that I get a large company that vets deals, manages the property, etc. After initial due diligence all I have to do is wait for my mailbox money to arrive every quarter.
I always take these gurus with their online courses, books, and meetings with a a huge grain of salt. If they truly discovered the secret of getting rich in real estate, why on earth would they share it? Just continue to buy real estate and amass a fortune if it really is that simple and you can get into it with little or now money down. The fact that they are peddling this secret should indicate that it is more profitable to get others to buy in on the dream than pursuing it directly yourself. That should be a big warning flag.
Great post, Rachel
All those points are true.
Anyone who starts buying real estate without knowing all that is more than a little naive.
Kiyosaki did a lot to boost interest in real estate. He is a great big picture guy, but skimpy on details. We have to learn those elsewhere and by experience.
Despite all this, I have been invested in real estate for over 30 years and it has been very rewarding. I receive substantial income from rents and the properties appreciate. I have friends who make more on rents alone than they need to live on. It is a great form of passive income. I can’t vouch for the crowd-funding route because I haven’t done that. Best of luck.