The best real estate investing schools just can’t prepare you for the school of hard knocks in real estate investing. The following stories come from 3 newbie real estate investors who all have formal educations in real estate investing. They all took courses, and some had mentors, who helped them learn the game of real estate investing. But sometimes the tuition is paid on the street, outside of the school. Here are 3 tales of newbie lessons learned in real estate investing:
- James and Miranda: After months of painstaking work and number crunching, making offers, and doing due diligence, this couple finally got a real deal under contract. A good friend referred a contractor who would do the repairs to the property. The contractor turned out to be flaky and kept making excuses. The couple was afraid to fire him, since the contractor was referred by a close friend, and they wanted to save face. After nearly 3 weeks of delays and excuses, no work had been done to the house. The couple finally fired the contractor, but their holding costs for the 3 weeks in limbo ate up a ton of their profit in the deal. The Lesson Learned: If your contractor delays in the beginning, fire him and find another. A contractor who makes up excuses is waving a red flag, so pay attention.
- Tamera: This newbie was taught to do more than one “flip” at a time, so she could really make money and quit her day job. She came to us for a rehab loan on a good deal in a nice area. We were concerned that she only had one flip under her belt, and it wasn’t even completed and sold yet. She purchased the 2nd property using our real estate loan for rehabs, and promised that the 1st property would be finished and sold in a matter of weeks. Two months later, she called us with an update. The 1st property had a few false start buyers, but was under contract again. The 2nd property was about halfway through the rehab, but was on hold until she had money from the sale of the 1st property to finish it. The Lesson Learned: Do only one deal at a time when you’re first starting out. Don’t try to quit your day job until you have a couple successful deals under your belt.
- Connie and Luke: The house seemed perfect and was listed at the right price. With only $9,000 in repairs, the house would easily fetch a much higher after repaired price. The couple quickly fixed up the home and listed it at the target selling price. The house was identical to sold listings at the target selling price that were ¼ mile from their house. After nearly 90 days on the market at the target selling price, the couple lowered the price. But why was the house not selling at the target price? The house was located on a busy street near an intersection. Getting in and out of the driveway was a chore with the traffic. The other sold comparables were on quiet streets with no traffic. The couple did not know to look at this fact before buying the home, and of course the realtor didn’t mention it. The Lesson Learned: How is your property different than the comparables? This couple did not know what to look for and in this case it cost them.
The school of real estate investing is a lifelong education. You may get a Diploma from a formal school that teaches real estate investing, but you’ll have to earn your Doctorate Degree through experiences on the street.