The Reality of Real Estate Investing: It’s Not as Easy as It Seems
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.
I won’t go into the mechanics of finding a deal here. But I will say, there are many ways and techniques to do so. Unfortunately, most real estate gurus only tell you about the techniques that have worked for them. Though, they may not necessarily work for you. Why? Everyone has a different personality and way of doing things. What works for one person may not necessarily work for you. And vice versa.
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.
Most likely, you’ll have the opposite experience starting out. Real estate agents and investors will bring you “deals” and try to convince you to buy their inventory. But in reality, these aren’t really deals. It’s just a way for them to make money and offload inventory most experienced investors don’t want.
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.
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.
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?