Real Estate Investing Truths
By Phill Grove
The Truth about Real Estate Investing... Is this business possible?
Several years ago, when I decided to start a career in RE investing, I started buying books, taking classes, and noticing those late-night commercials telling me how to "Make Big Money In Real Estate!" As a very conservative investor, with an electrical engineering background, I didn’t believe anything I heard. Thank God. All I wanted to know was "What are they not telling me?"
As it turns out, what they don’t tell you is quite a bit, so I’ve taken a little time to document just that, from my own experience.
So... here it is. I have personally made it through the maze. I’m a guy that really did make millions in real estate. I’m now going to tell you The 5 Truths About Real Estate Investing you probably won’t hear anywhere else.
I’ll start by answering the first question: Is this business possible? The answer is simply, yes, of course it’s possible to make great wealth in real estate. I think everyone knows and believes this, which is why so many people are attracted to real estate. Unfortunately, it’s not easy to become rich in real estate, and many people don’t make it.
Hopefully, the reasons that so many fail will become clear as you read through this "the truth about real estate" series....
The Truth about Real Estate Investing...
Truth #1: This is the BEST strategy!
There are a lot of real estate gurus selling "Make Big Money in Real Estate" books, tapes, classes, and more. They all claim that their system is the best system and yet they all seem to be teaching different strategies. So, which one is the best one…for where you live…in the current market…for you?
The truth is: Sadly, there is no way for a rookie to know... but that’s not as bad as it sounds
As a very experienced real estate investor, I can look at any training program and fairly quickly understand it’s pros and cons. This comes from having done a massive number of deals using a wide variety of strategies. I’ve come to realize that just about everything anyone teaches is a variation on things that have been done before. The better programs are updated, and may include up-to-date contracts, procedures, and/or done-for-you tools to make them easier to implement in the current market. The poorer programs are just repackaged versions of old programs that have not been updated.
I can try to share my (experienced) opinion with people about what works better, but I’m competing with a 1000 other voices expressing a 1000 opinions - including some motivated purely by greed or even ignorance.
The good news is that whereas some strategies may be easier and/or more profitable in different markets, the beauty of investing in real estate is that there are SO MANY ways to make money doing it, that it’s better to just do something (and become good at it) than to do nothing at all.
Now, I’m not saying that it’s easy and everything works. Indeed, it takes KNOWLEDGE + RESOURCES + CONFIDENCE + AMBITION. What I am saying is that it all starts with knowledge and action.
What’s the take-away? Study and execute!
Do your best to find people you trust and follow their lead, then get out there and do some deals! The most important thing to do is to start executing. As you start to make money, don’t ever stop learning additional strategies, and you will find that everything about the business will become easier and easier.
The Truth about Real Estate Investing...
Truth #2: The Truth, The Whole Truth, and Nothing But The Truth
Not long ago, I transacted my 1000th short sale. Short sales are fairly complex real estate transactions involving negotiating to buy homes for less than their loan amounts so that the homeowner, and the lender(s) can avoid a foreclosure. They can be win-win-win deals.
Transacting 1000 short sales makes me one of the nation’s top short sale experts. I can easily tell stories about all the deals that made me millions.
The truth is: that I have made over $3M on 100 short sales, and not enough to brag about on 900 other short sales. If I wrote a book, the way some gurus write books, I would tell story after story about all the deals that made me money, and I would be telling the truth…just not the truth, the whole truth, and nothing but the truth.
You see, investing is a numbers game, and knowing the numbers is one of the things that takes time to learn. It’s also one of the things "they don’t tell you" (although I will in the next section)
As another example, I like to do wholesaling (it’s one of the 12 strategies I do and I teach). But, the truth is that when you are a wholesaler, you are looking for a needle in a haystack... a ridiculously discounted property that you can then mark up and resell to an investor looking for a deal. If you are doing a massive amount of marketing, you will indeed find some of these, but to say that you will find a ton, is simply not the truth. You’ve probably noticed that there’s no such thing as a "Millionaire Wholesaler".
I actually get a little irritated when I see people bragging about how much they made on wholesale deals. You could practicably replace the the word "wholesaling" with "lottery ticket" in some people’s testimonials, for example. In other words, yes, Bobby did make $67,432 on a wholesale deal, just as Betty made $485,000 with a lottery ticket, but they were both just the exceptions among of thousands that made nothing.
What’s the take-away? Understand that investing in real estate is a numbers game, and learn your numbers, and then do enough marketing so that the numbers work for you.
The Truth about Real Estate Investing...
Truth #3: Skeptics, Gamblers, and Lucky Gamblers...
Statistically speaking, for every 20 real estate investing opportunities I look at, I make $15,000. Let me repeat myself, for every 20 leads I get, a lead being a motivated seller, I generally land a deal that makes at least $15,000. Sometimes I make more. Sometimes a lot more. But, statistically, for every 20 leads, I make at least $15,000.
I’ve looked at thousands of leads.
So, to me, it’s just a numbers game. If I want to make $15,000 investing, I need to generate 20 leads. If I want $30K, I need 40 leads. For $300K, I need 400 leads. For $3M, 4000 leads...
Now, if it’s so easy, why doesn’t everyone just do it?
Well, you do need the KNOWLEDGE of how to generate the leads…and then of course how to process those leads into deals, and how to transact those deals into dollars…all in a scalable, profitable, manageable, legal, ethical way. But all of that, can be learned.
The truth is: that the most important factor in determining how much money you will make in RE investing is how much marketing you do. The more marketing…the more leads…the more deals…the more dollars.
Insufficient marketing and poor marketing is the MOST COMMON MISTAKE made by new investors. You see, most new investor do not do enough marketing and thus only get maybe 2-5 leads in their first 1-3 months. Of these investors there are 3 groups...
GROUP A are the skeptics. They generally get frustrated because, statistically speaking, there will not be a good deal to be had from the leads generated in the time allotted. Most of these investors drop out of the business and go on to do something else with their time.
GROUP B are the gamblers. They take the best of the 5 deals and run with it. Often these deals lose money, causing these investors to drop out of the business. After all, at the end of their 1st deal, 100% of their investing experience will be negative.
GROUP C are the lucky gamblers. Like the gamblers, they take the best of the 5 deals and run with it, and it happens to be a great deal. These investors make money right out of the shoot, but gain only a false sense of perspective along the way that can lead to big losses or big frustrations down the road.
The truth is, you don’t want to be in any of these groups. You need to generate a sufficient amount of marketing to generate a sufficient amount of qualified motivated seller leads to generate the income you are targeting.
What’s the take-away? Do enough marketing so that you can be an investor and not a gambler!
The Truth about Real Estate Investing...
Truth #4: Make Big Money with Nothing Down!
Can you really buy houses with little or nothing down?
The truth is: yes you can!
The better question is: do you need to?
Among the top 12 real estate investing strategies I teach, 6 involve strategies for buying property with little or zero out of pocket. Used appropriately, these strategies can help anyone acquire properties, and in many cases flip those properties for profit, with no money.
At the same time, I also teach another 6 strategies that DO require money.
So, which strategies should you use? Well, my philosophy is to let the deal dictate the strategy. Don’t be afraid of deals that require money - people with money are always looking for deals, just as people with deals are always looking for money. They will loan you money and/or partner with you on the deals you find - if they are good deals.
What’s the take-away? Find good deals... and use whatever strategies necessary to transform those deals into the most $$.
The Truth about Real Estate Investing...
Truth #5: This is NOT for everyone!
The truth is that every time I give a class, at least one student comes up to me and says "…now that I’ve learned what it really takes to be successful in this business, I know this is not a business for me"
Many of these people also confess that they have taken many other classes before mine… And that the other class got them excited but they were not able to execute on the strategies for one reason or another. But after meeting me, they felt like they’d get a lot out of my philosophy, investing strategy and teaching style.
They did get a lot of our my class. They got a reality check about investing.
I always have mixed feelings about these confessions. Overall, I feel that this was a success – although I did not make this person a successful real estate investor, I did enable them to conclude sooner rather than later that this was not where they want to spend more time and money.
So many gurus out there make everything sound so sexy and easy. The truth is that real estate investing is not always sexy and rarely easy. When I teach I address everything. For some people seeing the difficult side of investing is not appealing. It’s almost impossible to passively make money in this business unless you’ve taken the time to set up all the right automation tools and have done it for a while. Then, of course, you could do it with your eyes closed.
What’s the take-away? Find out what it really takes, and if you’ve got what it takes - go for it!
The Truth about Real Estate Investing...
Truths #6-17: The Risks and Rewards of Investing in Real Estate
I thought I would conclude this series by talking about the risks and rewards of investing using all of the top 10 popular investing strategies... Now, this really is the truth that nobody tells you...
Strategy #1: Wholesaling
Risks: LOW - you can always terminate your contract
Rewards: LOW - you get the excess margin between a great deal and greater deal
Scalability: LOW - Hard to find many great deals with margin, means low volume of deals and little money to make
Strategy #2: Rehabbing
Risks: HIGH - beginners underestimate rehab and overestimate value...and get killed most of the time!
Rewards: HIGH - If you make $$, it can be from $5K to $500K or more...
Scalability: MEDIUM/LOW - gotta do a lot of marketing to find them
Strategy #3: Buy and Hold
Risks: MEDIUM - You’ve got to have money to make money with this
Rewards: HIGH - Over time it’s the best way to build wealth but it may take a while
Scalability: MEDIUM
Strategy #4: Short Sales
Risks: MEDIUM/LOW - Biggest risk is the time it takes versus the return
Rewards: MEDIUM - You’ve got to set up a business to do a ton of deals to make some $$ at this
Scalability: HIGH
Strategy #5: Foreclosure Auctions
Risks: HIGH!!!! - Like rehabbing, but on steroids. Being able to evaluate deals is always critical, now you are doing it without inspections and with potential liens
Rewards: HIGH - Like rehabbing
Scalability: MEDIUM - new deals every month, though most not great
Strategy #6: Mortgage Payment Assignment
Risks: LOW - You to terminate the contract if you can’t find a retail buyer. You can bind a new buyer if the old one does not work out.
Rewards: MEDIUM - Not huge $/deal, but scalable
Scalability: HIGH
Strategy #7: Wraps
Risks: MEDIUM - You have to pick up the tab if a buyer defaults, but since it’s easier to find buyers than sellers, this is usually worth the risk - Low risk also that bank calls note
Rewards: HIGH - Fairly scalable business means you make more and more as you collect income on multiple wraps and get the big back endScalability: MEDIUM
Strategy #8: Lease/Options
Risks: MEDIUM - You have to pick up the tab if a buyer/renter defaults, but since it’s easier to find buyers than sellers, this is usually worth the risk
Rewards: MEDIUM - Fairly scalable business means you make more and more as you collect income on multiple L/O’s, but fairly high default rate limits scalability
Scalability: MEDIUM
Note: Lease/Options are practically impossible to do in Texas (and some other states). In fact because of the Texas Lease/Option law, I don’t do them at all.
Strategy #9: Equity Partnering
Risk: MEDIUM/LOW - This is a renovation, but with lower acquisition costs and better financing
Rewards: MEDIUM/HIGH - Rewards of rehabbing, although you split the profits
Scalability: MEDIUM
Strategy #10: Option - Auctions
Risks: LOW - Like wholesaling, you can always terminate your contract
Rewards: MEDIUM/HIGH - When it works, it can work big!
Scalability: LOW - It rarely works
Strategy #11: House Swapping
Risks: MEDIUM - Now you are dealing with 2 deals in one
Rewards: MEDIUM/HIGH - Now you are dealing with 2 deals so you can get up to twice the profit
Scalability: LOW - These deals are rare, but fun!
Strategy #12: Listings
Risks: LOW
Rewards: LOW - You get 3%... wahoo - don’t spend it all in one place
Scalability: MEDIUM/LOW - Lots of realtor competition out there...
Would you like to LEARN MORE??? Watch the complete "12 Ways to Do a Deal" video on my Love American Homes website: www.LoveAmericanHomes.com