What factors influences investing experience?

Question

I am just starting out in real estate investment. My first property will be, unless something changes, the duplex we're currently living in on a rent-to-own basis.

Whenever I tell people what my wife and I want to do we either get verbal support or some cautionary tale.

To those who have experience, what factors influence investment experience? Why do some love it and others see it as one of the worst mistakes they've ever made? Why do some succeed and others break even at best? Thanks in advance.

J Scott · Answer

There are a lot of reasons why people fail in this business -- and they are the same reasons that people fail in other businesses:

- They didn't know enough going in

- They were under-capitalized

- They didn't have a plan (or at least not a realistic one)

- They didn't execute well

- They didn't devote enough time/energy to the business

- They weren't detail oriented enough

- They didn't manage well

- Etc...

Real estate is no different than any other businesses -- some people approach it correctly and do well; other people treat it lightly or don't have the raw skills necessary to be sucessful -- and fail.

Kyle Scofield · Answer

@Adam Kasel The short and simple answer is....MATH. They don't do the math right. People don't include many of their expenses, capital expenditures, and vacancy. They buy hoping property will appreciate in value but then there's a market correction and it leaves them over levered and burned on the deal.

Jacob Sampson · Answer

Good questions.  I think @Kyle Scofield hit it on the head.  Beyond that here are some random thoughts.

People don't have the proper expectation.  They buy into the idea that real-estate can make you wealthy quickly rather than the reality that REI IS A GRIND.  IT'S ABOUT TIME, and QUANTITY, and ...TIME.  If it's too exciting then you're probably doing it wrong.

People aren't properly capitalized so when they have a bad combination of events, tenant destroys the place and won't move out.  Finally tenant is evicted, but the owner doesn't have the money to perform the repairs or at least can't perform them quickly so they go several more months getting repairs done slowly, without collecting rent.  That can be disheartening.  That situation can convince someone to sell and get out.  BIG PILES OF SWEATY CASH, IS THE ANSWER.

People don't treat it like a business.  You need to boot tenants as quickly as the law allows.  This isn't about helping people out.  When you are wealthy from real estate you will be able to help more people out in a bigger way.  Also, keeping detailed numbers.  Filing taxes is only the smallest reason to keep detailed numbers right from the beginning.  The more important reason is so you have data with which to make decisions.  IF YOU DON"T MEASURE YOU CAN'T IMPROVE.

You should be able to tell what the average vacancy rate is for your multi families vs SFH.  You should be able to tell what each properties actual long term cash flow is.  You should be able to tell how much of maintenance is going to labor vs materials.  All of this and MUCH more will give you the ability to make correct decisions.  Is that cheap carpet only good for the upfront numbers but long term is very expensive?  Is your area saturated with MF units and so you can make a killing on SFHs?  Is one of your properties dragging down you cash flow and you should unload it?

People don't recognize that there are many ways to invest in RE and not every area can support every option.  Some areas just won't support buy and hold.  Don't invest in an area that doesn't support the option you prefer.  Not every stock is worth buying and not every area is worth investing in.

Back to keeping numbers.  A couple of bad years can make this seem like a failing business.  If you have the numbers and can see the bigger picture you may realize the current situation is abnormal.  The problem is temporary and you should be able to pull through.  You can't see this sort of thing without data.  DON'T MAKE PERMANANT DECISIONS BASED ON TEMPORARY PROBLEMS.  And vice versa.

People don't invest in what they know.  The area they live in.  Many people can invest successfully out of state but if this is your first step into REI and you chose to invest out of state, you are just rolling the dice.

Corey Woodruff · Answer

Adam Kasal I believe some fail cause they don't put enough time and effort into planning and building a business. Cause ultimately it is a business. My boss and friends told me I was dumb for getting into real estate cause people they know hated landlording but I also know people who have failed in small business ownership and if everyone stopped opening up businesses cause some failed where would we be. Some people fall some don't. But your chances of succeeding are greatly increased by education and hard work

Adam Kasel · Answer

Thanks to each of you for your input. That all makes sense.

What factors influences investing experience?

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