Newbie talking with Experienced Investor

[Chelsea Newton]

I am a young aspiring real estate investor in the triad area in NC. I am definitely in that first eager stage of soaking up everything I possibly can. I have been spending my lunch breaks driving around the area looking at houses, neighborhoods, and signs just to get a better idea of my market. Today I stopped by a house that has been undergoing renovation and it now looks completely flipped and has a "for rent" sign in the front yard. I got the number off of it and am going to call today to see if I can get in touch with the, hopefully, investor. I am so nervous!!! It is so intimidating thinking about how much more knowledge and experience they have in the business compared to me. Also I am going to my first REIA meeting tomorrow at lunch. So my question is what should I do or say? What do investors want to hear? I am hoping to just get my name out there, and maybe even find a mentor. I really just want to go through the deal with them and ask them a million questions about it but I don't want to be annoying or time consuming. Any advice?

[Martin Scherer]

This post asks a good question, but reminds me of the book titled "Beware of the naked man who offers you his shirt".  Who is an expert investor, who is a real guru and should you pay just anyone to be your mentor?

In an up market much as we have now ANYONE can be a "genius", "hero"  or whatever you want to call the person who has done a sucessful deal or two.  Anyone can purchase and sell for a profit in a rising market.  Smart or talent has nothing to do with it.

I read some of the deals  just closed here on BP with everyone excited and congratulating the purchaser.  That's fine but I have to wonder if they really thought through the deal, especially the short term financed ones.  I just want to ask them what is going to change in your situation in the next 2 or 3 years that makes you believe the bank will refi for enough to bail you out.  There have been several posts lately from people who had their mentor tell them to make the purchase and now regret they ever met the guru or the house. "One year and I can't sell my flip" or " I bought two homes at the county tax sale and I can't get anyone interested in buying them for anywhere near what I paid". 

This is sad.  Real Estate investment is not for everyone and just because you can make a deal doesn't mean you should.  Leverage works both ways and if you neither understand that or believe that you shouldn't be investing in real estate.  It is very hard work but can be very rewarding.

A simple tale to explain what can happen. I have an acquaintance from my REIA who started investing in 2003 and turned $10,000 borrowed money into $660,000 equity by the end of 2006. He was a guru, the go to go guy for some local new investors. Then in 2007 even though he knew,felt,the market was slowing bought a nice big home and started building rentals. He neglected to notice that while his equity increased due to the market conditions, not due to his genius, he over extended himself. When 2008 hit and the market changed just as he finished competing his rental homes, he couldn't refi the properties due to law changes at Fanny and Freddie limiting investors to 5 properties. He suddenly went from a potential income of $500 per rental to a minus $1100 per rental. He had no control over the change just as he didn't have any control over the market forcing the values of his properties up before 2008.

Today while he didn't really lose any of the properties some are still under his original purchase price and he has about 10,000 equity total.  He has income from the properties and depreciation that's great but one of the properties he just sold went for a whopping $5000 over his purchase price after holding it for 11 years.

Sorry for the long rant but if it saves one potential newbie from buying a bad property it is worth the effort.  Analyze and ask  not could I but should I buy and how does it fit into my overall scheme.